MPs this week urged the government to use its AAA credit rating to underwrite investments in low carbon energy projects.
Responding to the government’s draft Energy Bill, the cross party Commons Energy and Climate Change select committee criticised the government’s failure to provide certainty for investors in this developing market.
The Energy Bill introduces a new system of long term contracts to give power companies a guaranteed price for low carbon electricity. This is intended to reduce the risk of investing in projects with high up-front capital costs, such as nuclear reactors and offshore wind farms.
Initial consultation last year led investors to believe that suppliers would be offered Contracts for Difference under which the government guarantees a minimum electricity price for producers of low carbon and renewable energy. But the committee said the Treasury had “apparently intervened” to ensure that these contracts will not be government guaranteed.
Instead, the new proposals spread the liability across various energy companies.
“Electricity market reform is essential, but the new contracts proposed by the government will not work for the benefit of consumers in their present form,” said committee chairman Tim Yeo.
“Nobody wants to see a blank cheque written out for green energy, but the government must provide investors with more certainty about exactly how much money will be available.”