Chapter 2: Developments in energy policy
7.This chapter considers how energy policy in relation to electricity has developed over recent decades. It will use the Hinkley Point C project as a case study to illustrate some of the main issues with present policy.
Government’s objectives for energy policy
8.The Department for Business Energy and Industrial Strategy said in their written evidence that the Government’s “overarching economic challenge for energy policy” was to ensure that the country’s energy is:
- reliable;
- affordable;
- clean.7
9.Nearly all our witnesses agreed that these are the correct objectives for energy policy and they are shared by most other developed countries.8 It is clear though that these objectives can conflict and trade-offs are required when developing energy policies. Matthew Bell, Chief Executive of the Committee on Climate Change, acknowledged these “tensions” between the objectives and pointed out: “In some instances, they will all work in the same direction. In others, the tensions will require choices.”9
10.Carbon Connect gave two examples of the conflict between the objectives:
“measures to decarbonise the energy system, such as the progressive removal of coal-fired plants, have arguably threatened the continuity of supply, whilst subsidies to assist the introduction of renewables have led to price rises for consumers.”10
11.Hinkley Point C, discussed below, offers another example where affordability has not been given sufficient priority. The cost of Hinkley Point C is deferred to the next generation: a child born when the project was confirmed in 2016 will be 44 years old when payments under the contract for difference cease.
12.Chapter 3 explains how British electricity prices, for domestic and business users, have risen sharply in recent years. This is in part due to badly designed policies, pursued by successive governments, which have prioritised decarbonisation. We consider that affordability needs to be given more weight in policy-making and Chapter 4 sets out our thinking and recommendations on this in greater detail.
13.Before examining solutions, however, we need to look in more detail at how government policy moved away from a liberalised market approach that had resulted in Britain having the cheapest electricity prices in Europe by the early 2000s.11
Changes in energy policy over recent decades
The market for Energy
14.In 1982, the then Secretary of State for Energy, Nigel Lawson, gave a speech that outlined what he saw as the government’s role in the energy market:
“I do not see the government’s task as being to try and plan the future shape of energy production and consumption. It is not even primarily to try to balance UK demand and supply for energy. Our task is rather to set a framework which will ensure that the market operates in the energy sector with a minimum of distortion and energy is produced and consumed efficiently.”12
15.The electricity supply had been nationalised after the Second World War and was planned centrally by the Central Electricity Generating Board.13 Ed Miliband, speaking as the Secretary of State for Energy and Climate Change, described his predecessor’s speech as “remarkable” in that “it sought to fundamentally challenge received doctrines about the market and state in energy policy … it preceded almost all of the energy privatisations of the Thatcher era and yet foreshadowed them and set out their intellectual framework.”14
16.Professor Dieter Helm has written that the speech heralded a “radical departure” from the existing approach and he outlined the subsequent action taken by the government as follows:
“a rolling programme of, first, downsizing the coal industry … pruning back the nuclear programme, liberalising North Sea licensing, privatising the gas and electricity industries, liberalising retail supplies, and then redesigning the electricity market … and finally extending this market into Scotland.”15
17.The Labour Government in 1997 adopted this liberalising approach and were able to declare in their 2001 manifesto that they had brought “full competition to the gas and electricity markets”.16 The introduction of competition into the market had an effect on the average domestic electricity bill, which decreased from £489 in 1991 to £333 in 2003 (2010 prices, see Figure 1). Professor Helm concluded that “if the objective was cheap energy, then whatever the theoretical advantages of liberalised markets over planning, the new energy policy based upon the Lawson doctrine gradually delivered the results.”17
Figure 1: Average annual domestic electricity bills for a typical consumer in the UK, 1991 to 2016 (£, 2010 prices)18
Source: BEIS, Quarterly energy prices (22 December 2016), Table 2.2.1: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/49371/qep221.xls [accessed February 2017]
The rise and fall and rise again of a Department for Energy
18.The year 2001 perhaps proved to be the high watermark for the liberalised approach. By the end of the decade the Government was once again heavily involved in the market, through instruments such as the Renewables Obligation Certificate that was first introduced in 2002.19 And a Department for Energy was back in Whitehall: abolished as a separate department in 1992, the ‘Department for Energy and Climate Change’ was established in 2008. In a speech to mark its creation, the then Secretary of State for Energy, Ed Miliband, said it spoke “to changing times”.20
19.The department’s new name highlighted what was perhaps the biggest change: the reduction of carbon emissions, to address concerns about climate change, had become a government objective of energy policy in the early 2000s. The Climate Change Act 2008 then committed the UK in law to reducing carbon emissions by 80 per cent of 1990 levels by the year 2050. A year before the European Union had set emissions targets for 2020: member states were required to cut emissions by 20 per cent and the UK was required to generate 15 per cent of its electricity from renewable sources by 2020.21
20.The other main change concerned security of supply. Capacity margins—the amount of electricity generating capacity relative to demand—were falling as older power stations came to the end of their life.
21.Mr Miliband said that both of these changes required government to act:
“These are … challenges where we cannot assume in advance that private incentives add up to the public good. No individual company will fully respond to the public interest in tackling climate change without a price on carbon. Each individual company has an interest in selling power to meet demand, but there is a greater public interest in ensuring security of supply … In a world where carbon didn’t seem an issue, Britain had excess supply, and prices were low, it was easier for these market failures to be assumed away. Today, we don’t have that luxury. That is why we need both dynamic markets and a strategic role for government”.22
22.We accept that both of these considerations required a modification of the liberalised approach of the 1980s and 1990s—the market does not give sufficient incentives for generators to reduce emissions and ensure a sufficient level of excess capacity. But have recent governments sought to do this in the most cost-effective way?
Hinkley Point C: a case study
“I fundamentally believe that the deal is a fair deal for the investors and the consumers.” Vincent de Rivaz, Chief Executive Officer of EDF23
“The three Governments—starting with Labour, then the coalition and now the Conservatives—have managed to design possibly the most expensive programme for delivering nuclear power that we could have come up with … we are delivering this in a staggeringly expensive way.” Peter Atherton, Cornwall Energy24
23.In September 2016 the Government gave the go-ahead to the proposed Hinkley Point C nuclear power station. The Government had previously agreed to pay EDF, who will construct and operate the power station, £92.50 per megawatt hour for the electricity it produces.25 This price, which will rise with inflation every year, is guaranteed for 35 years.
24.The agreement was made under a ‘contract for difference’ (see Box 2). Under EDF’s current plans, Hinkley Point is expected to start generating electricity in 2025. Regardless of the changes in the cost of other forms of electricity generation, EDF will receive the inflation-linked strike price for the power it generates until 2060.
Value for money
25.Is this a fair deal for British consumers? The Government believes so. It published a three page document in September 2016 which purported to demonstrate that the strike price was competitive against a selection of other forms of low-carbon energy in 2025. It concluded by saying that the Secretary of State for Business, Energy and Industrial Strategy was “satisfied” that offering the contract represented value for money.26 Table 1 reproduces the price comparison made with other sources of low-carbon energy.
Table 1: Estimated cost of low-carbon electricity generation “in the 2020s”27
Electricity source |
Estimated cost in megawatts per hour |
|
Combined cycle gas turbine |
£47 to £96 |
|
Onshore wind |
£49 to £90 |
|
Solar (photovoltaics) |
£65 to £92 |
|
Offshore wind |
£81 to £132 |
|
Commercial carbon capture and storage |
£77 to £249 |
|
Hinkley Point C strike price |
£92.50 |
26.The document described the Hinkley Point C strike price as being “within the range of the costs” of the other technologies. We note the Hinkley Point C strike price is at the upper end of most of the estimates, the costs of other technologies, such as offshore wind, are coming down more quickly than anticipated and other technologies do not receive contracts for 35 years (offshore wind currently receives support for 15 years).28 The value for money assessment pointed out that the estimates for solar and wind did not take account of backup generation costs or grid upgrades that would be required for them to produce the same amount of electricity as Hinkley Point C.
27.Most of our witnesses disagreed that the project provided value for money. Professor Michael Grubb, Professor of International Energy and Climate Change Policy at University College London, said that although he had supported the development of new nuclear during his time on the Committee on Climate Change, he felt “times and conditions had substantially changed … renewables are now clearly cheaper. Committing to a 35-year contract at that level was economically inappropriate”.29 Tom Burke, chairman of 3EG, criticised the Government’s value for money assessment:
“There is simply not enough information accessible in that document to come to a reasoned conclusion about whether it provides value for money … there are a number of other ways in which we could go about delivering affordable, low-carbon electricity to Britain’s consumers, at lower cost than is proposed in order to support Hinkley”.30
28.There are also a number of risks associated with the project. Comparable nuclear power stations that EDF are constructing in France and Finland are years behind schedule and billions over budget; the completion date for Hinkley Point C has itself been put back a number of times from the original expected opening date of 2017.31 Further delays would put great pressure on the future supply, given the plant is due to be producing seven per cent of Britain’s electricity in 2025.32
29.EDF has also suffered from financial problems recently and may not be able to raise capital in the future without further support from the British Government.33 Its finance director resigned in March 2016 after his request to delay the project by three years was rejected.34 The current financing model depends on Chinese involvement which is linked to the Government granting permission for the construction of a Chinese-led nuclear power station at Bradwell.35 David Clarke, the Chief Executive of the Energy Technologies Institute, told us that from an engineering perspective, the project probably had a better than seven in ten chance of being delivered on time: “Does that worry me as an engineer? It ought to be better”.36
30.Another proposed nuclear power station, by NuGen at Moorside in Cumbria, is also facing difficulties. NuGen’s chief executive, Tom Samson, told us the project had a “significant funding gap”.37 NuGen have said Moorside will provide 7 per cent of Britain’s electricity when it is expected to open in the mid-2020s.
31.We note that the agreement between the Government and EDF contains a £2 billion HM Treasury guarantee. The Secretary of State told us that EDF have confirmed that it does “not intend to avail itself” of the guarantee and if it changed its mind, “there are wide ranging conditions which would need to be met”.38
The cost to consumers
32.When the market price of electricity is below the strike price, the cost of the payments made to EDF will be ultimately paid for by consumers. This subsidy is initially paid for by the Government, who then reclaim the cost from electricity suppliers, who then pass on the cost to the consumer.39 As this cost is not levied as a tax, it is not clear to customers the extent to which they are subsidising electricity generation. Ecotricity were one of several witnesses who argued that this approach was “regressive and disproportionately hurts those who can least afford it.”40. It also creates intergenerational unfairness as the costs, spread over many years, will continue to be met by future generations.
33.Officials from the Department for Business, Energy and Industrial Strategy told us that the cost to consumers over the course of the 35 year contract for difference would be between £11 and £21 billion (in 2012 prices).41 The National Audit Office, however, estimated in July 2016 that the overall cost to consumers would be £30 billion.42 The figures are different because the Department used the standard discount rate for appraising consumer and society-wide impacts while the National Audit Office used the discount rate appropriate for the accounting treatment of financial assets. 43
34.The National Audit Office’s estimate had increased from £6 billion in October 2013 when the strike price had first been agreed. The large increase was because the Government’s projected cost of wholesale electricity prices had fallen by 22 per cent since 2013.44 Dermot Nolan, Chief Executive of Ofgem, said that in 2013, “people’s expectations of energy prices in 10, 20 or 30 years’ time were very different from what they are today. That just illustrates the way in which these things can change.”45
35.In the light of the significant and ongoing concerns about the deal, if the Hinkley Point C project is to proceed the Government should:
(a)Explain how it will replace the capacity expected to be provided by Hinkley Point in the event that completion of the project is delayed, given Hinkley Point C is due to provide 7 per cent of Britain’s electricity in 2025.
(b)Provide a clearer statement of how the project will provide good value for money for the taxpayer, given concerns over the existing justification.
The Government’s motivation for the deal
36.Why did the Government not try to renegotiate the price when it reassessed the project over the summer of 2016, given the extent to which the circumstances had changed in just three years?
37.Given the involvement of a French state-owned company and investors from China, we acknowledge that political considerations, beyond the scope of this report, may have played some part.46 But there were arguably two more important factors at play: the Government’s commitment to decarbonisation of the electricity supply in line with the carbon budgets47 and the need to ensure Britain has sufficient generating capacity in the 2020s. The rest of this chapter considers the wider policies that governments have implemented to address these two considerations.
Current energy policies
Subsidies for low-carbon generation
38.Electricity generated by fossil fuels has always been, and remains, cheaper than electricity generated by renewable sources. Renewables generation requires some form of subsidy in order to be competitive (or the application of an appropriately calibrated carbon tax on fossil fuel generation).
39.In order to reduce emissions, the UK therefore introduced support for renewable generation in 2002 in the form of the Renewables Obligation. This was followed by the Feed-in Tariff in 2008. These schemes, the costs of which were ultimately borne by consumers, are explained in Box 1 below.
Box 1: Renewables Obligation and Feed-in Tariff schemes
|
The Renewables Obligation scheme required suppliers of electricity in the UK to source a proportion of their electricity from renewable sources. Suppliers did this by purchasing certificates issued to an accredited generator of renewable electricity. Renewable generators therefore had two sources of income: income generated from the sale of electricity in the wholesale market, and the income from the sale of the certificates. It was expected that suppliers would pass on the costs of purchasing the certificates to customers. When the scheme was introduced one certificate was issued for each megawatt hour of renewable electricity generated. This encouraged growth in the most developed, cheaper forms of generation such as onshore wind. In 2009, the scheme was altered so that greater levels of support were provided to less well developed technologies: onshore wind generators carried on receiving one certificate per megawatt hour of electricity generated but offshore wind generators received two certificates per megawatt hour. The levels of support for each technology were reviewed every four years. 48
Each year, the Government sets the proportion of electricity that suppliers must source from accredited renewable generators. This is based on a prediction of the amount of electricity that will be supplied in Britain and the number of certificates that will be issued to accredited generators. The Feed-in Tariff scheme was aimed at smaller generators of renewable electricity (up to five megawatts of output). Individuals and businesses were paid a set amount for each kilowatt hour of renewable electricity that they generated and used themselves. A smaller payment was available for any surplus electricity sold to the grid. The costs of this scheme would also be passed onto consumers. The schemes have helped increase the proportion of electricity that is generated from renewable sources: from around 4 per cent in 2002 to 27 per cent in 2015.49 Chapter 3 looks at how expensive this has been to achieve. Table 2 shows the breakdown of renewable generation by source for 2015. Table 2: Renewable generation by source for 2015 Onshore wind and solar 34 Bioenergy 32 Offshore wind 19 Hydro 7 Pumped storage 3 Other 5 |
Source: Department for Business, Energy and Industrial Strategy, Energy Trends: electrcity (26 January 2017): https://www.gov.uk/government/statistics/electricity-section-5-energy-trends [accessed February 2017]
40.As early as 2007, Ofgem were concerned that the Renewables Obligation was a “very expensive way of reducing carbon emissions compared to other alternatives”. Ofgem argued that investors were receiving returns higher than they “expected or required”.50
41.Lord Turner of Ecchinswell, former Chairman of the Committee on Climate Change, concurred that the “open-ended nature of the [renewables obligation] regime and the fact that it was simply an add-on revenue to the wholesale price that the generators received” was not optimal.51 The Government identified the limited ability of the scheme to “adjust support levels quickly enough to reflect cost reductions achieved” as one of its major weaknesses.52
42.The UCL Energy Institute told us that the clearest example of this was solar power:
“Governments in several countries were caught by surprise by its sudden drop in price. This was caused by increasing volume sales driven by the generous feed-in-tariffs offered in several countries, as well as by major investments in manufacturing of the technology in China.”
43.Energy UK said that the Feed-in Tariff, a demand-led scheme, “enjoyed a high level of popularity that government had not accurately anticipated … This has led to higher costs on customer bills due to a stronger than expected demand for the scheme.”53
44.To try and control the costs of subsidies, the previous Government introduced the Levy Control Framework in 2011 which capped the cost of the two schemes. As a result of greater than expected take-up of the schemes, the Office for Budget Responsibility announced in July 2015 that forecast spend under the framework would be £9.1 billion, £1.5 billion more than expected. The schemes are part of the reason for the increase in electricity bills since the early 2000s which are described in the next section.
Figure 2: Renewable subsidies timeline
Recent Government policy
45.The Government has taken action to try and reduce the cost of support for renewable generation. On Feed-in Tariffs, the level of support has been reduced and will continue to fall automatically.54 The Renewables Obligation will be closed to new entrants in April 2017 and its replacement for supporting low-carbon generation is the Contracts for Difference scheme which was launched in 2013. In the period when both schemes have been operating, renewable generators have had the option of choosing which scheme to receive support under. The Renewables Obligation scheme will close to existing participants in 2037.55
Box 2: Contracts for Difference
|
Contracts for difference work as follows:
The Government explained the rationale for these arrangements as follows: “This mechanism allows for payments to generators to provide increased certainty around revenue levels, in order to bring forward investment, while retaining the need for the generator to sell its electricity in the commercial market.”57 |
46.Early contracts for difference, like the one agreed for Hinkley Point C, were awarded without price competition: the £92.50 strike price was just agreed between EDF and the Government. The National Audit Office criticised the awards of these contracts in a June 2014 report:
“The contracts have been awarded without price competition and with administratively set strike prices which may provide higher returns than needed to secure investment. We are not convinced that it was essential to award so much consumer support to early contracts in order to meet the 2020 renewables target. Awarding so many early contracts of this scale in this way has limited the Department’s opportunity to secure better value for money.”58
47.Since then there have been moves to introduce some competition for particular technologies. These are discussed in Chapter 3.59
Tight capacity margins
48.The growth of renewable energy, supported by contracts that guarantee a given price for a fixed period, has left the UK facing a possible shortage of capacity as private investors have not been willing to build new conventional power plants. STAG Energy explained the cause of the problem in their written evidence:
“This has been caused by the growth in renewable energy which has been supported by contracts outside the wholesale electricity market and has undermined the price transparency that this used to bring. The combination of unpredictable demand and revenue has resulted in conventional fossil fuel plant becoming uneconomic without some form of capacity payment to allow existing plant to run when needed and facilitate the building of new plant to ensure adequate capacity to meet demand.”60
49.The lack of new power stations being built was another factor behind the decision to proceed with Hinkley Point C. Lord Lawson of Blaby described it as “a ridiculous white elephant” which the coalition government had originally agreed to because “they were so desperate about running out of electricity capacity in this country.”61
50.The previous government acknowledged the problem and introduced the Capacity Market in 2014 to provide stand by generation. The Capacity Market allows the Government to buy generating capacity in advance for use from 2017/18. The cost of the scheme is ultimately paid for by consumers. The Government decides how much capacity it will need and an auction then takes place. Those generators who successfully bid are then guaranteed there will be demand for the power that they produce.
51.The scheme has meant that the last power station to be built without some form of government guarantee was in 2012.62
A new direction for energy policy
52.Electricity generation policy is, and always has been, a combination of public policy and private activity. The balance between the two has varied over time. In the 1980s government policy shifted clearly in favour of a market-based approach with minimal government interference. This has been reversed in the 21st century, with government applying indirect control over the market as a result of policies designed to increase renewable generation.
53.A shift was necessary. Policy must adapt to the circumstances of the time: what was appropriate when decarbonisation and security of supply were not substantial concerns will require some modification today.
54.Nevertheless, Lord Lawson’s enunciation of the Government’s task in energy—to set a framework which will ensure that the market operates in the energy sector with a minimum of distortion—remains relevant. Recent decarbonisation policies, as shown above, have not been achieved with the minimum of distortion: as Professor Dieter Helm said, “the degree of state intervention we now have is more akin to the nationalised model … than it is to the market process.”63
55.Substantial progress has been made in renewable energy generation but this has been expensive for consumers and distorted the wholesale market for electricity to the extent that nobody will build power stations without government guarantees. A plethora of new and sometimes conflicting mechanisms have distorted the market and raised prices with limited effect on the capacity margin. We explore both of these problems in more depth in the next chapter.
8 Q 1 (Prof Dieter Helm)
9 Q 53 (Matthew Bell). When discussing the tension between the objectives, Mr Bell thought that ‘conflict’ was “probably the wrong word to use”.
11 See Figure 3.
12 Nigel Lawson MP, op cit.
13 Electricity Act 1947. The Central Electricity Generating Board was established by the Electricity Act 1957 and replaced the British Electricity Authority which carried out similar functions.
14 Ed Miliband MP, The Rise And Fall And Rise Again Of A Department Of Energy (9 December 2008): http://www3.imperial.ac.uk/pls/portallive/docs/1/54221696.PDF [accessed January 2017]
15 Dieter Helm, The New Energy Paradigm (Oxford: OUP, 2007), p 19
16 Labour Party, Ambitions for Britain: Labour’s manifesto 2001 (2001): http://www.politicsresources.net/area/uk/e01/man/lab/ENG1.pdf [accessed February 2017]
17 Dieter Helm, The New Energy Paradigm (Oxford: OUP, 2007), p 20
18 Prices deflated to 2010 terms using the GDP (market prices) deflator.
19 Discussed in Box 1.
20 Ed Miliband MP, op. cit.
21 This was the UK’s share of the overall target to generate 20 per cent of the EU’s energy from renewables by 2020. There was also a target to improve energy efficiency across the EU by 20 per cent by the same year.
22 Ed Miliband MP, op. cit.
23 Q 61 (Vincent de Rivaz)
24 Q 70 (Peter Atherton)
25 This was agreed in 2013 and the £92.50, index-linked from that date, is in 2012 prices. The price will be reduced to £89.50 per megawatt hour if EDF take a final investment decision on their proposed Sizewell C project.
26 Department for Business, Energy and Industrial Strategy, Hinkley Point C Value for Money (September
2016): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/556917/3_-_Value_for_Money_Assessment.pdf [accessed February 2017]
27 The value for money assessment did not give a year for the estimates, the time period given was “in the 2020s”.
28 The levelised cost of offshore wind in the UK has fallen by 32 per cent since 2012. It is now below the joint Government and industry target of £100 per megawatt hour four years ahead of schedule. Catapult Offshore Wind Programme Board, Cost Reduction Monitoring Framework 2016 (24 January 2017): https://ore.catapult.org.uk/our-knowledge-areas/knowledge-standards/knowledge-standards-projects/cost-reduction-monitoring-framework/ [accessed January 2017]
29 Q 44 (Prof Michael Grubb). Professor Grubb said he appreciated that “other factors may have driven the final decision … but I do not think history will put that decision in a good light”.
30 Q 68 (Tom Burke)
31 Emily Gosden, ‘Hinkley Point fires up Britain’s nuclear ambitions’, Daily Telegraph (17 September 2016): http://www.telegraph.co.uk/business/2016/09/17/hinkley-point-fires-up-britains-nuclear-ambitions/ [accessed February 2017]
32 EDF Energy, Press release: Agreements in place for construction of Hinkley Point C nuclear power station, 21 October 2015: https://www.edfenergy.com/energy/nuclear-new-build-projects/hinkley-point-c/news-views/agreements-in-place [accessed February 2017]
33 ‘EDF sees Britain taking £6bn Hinkley stake’, Financial Times (2 September 2016): https://www.ft.com/content/0b80e672-70ea-11e6-a0c9-1365ce54b926 [accessed February 2017]
34 Robin Pagnamenta, ‘EDF executive lobbied to halt £18bn Hinkley Point’, The Times (5 May 2016): http://www.thetimes.co.uk/article/edf-executive-lobbied-to-halt-18bn-hinkley-point-6kjs0l5vv [accessed February 2017]. He told a French parliamentary committee in May 2016 that it would have been a professional mistake” to stay on at the company: “Who would bet 60 to 70 per cent of his equity on a technology that has not yet proven that it can work and which takes 10 years to build”.
35 Q 7 (Prof Dieter Helm)
36 Q 44 (Dr David Clarke)
37 Q 80. NuGen is a joint venture between Toshiba and Engie. Toshiba have been reported to be under pressure to find investment for the project: ‘Toshiba faces pressure to secure funding for UK nuclear project’, Financial Times (22 January 2017): https://www.ft.com/content/c0b01308-e0aa-11e6-8405-9e5580d6e5fb [accessed February 2017]
38 Letter from the Secretary of State for Business, Energy and Industrial Strategy to the Chairman, 11 January 2017: http://www.parliament.uk/documents/lords-committees/economic-affairs/The-Economics-of-UK-Energy-Policy/170116-SoS-for-Business-Energy-Industrial-Strategy-to-Lord-Hollick.pdf
39 See Box 2 for further details on how contracts for difference operate.
40 Ecotricity. UKERC, Energy Technologies Institute, UCL Energy Institute and Citizens Advice all made the same point in written evidence.
41 Q 154 (Paro Konar-Thakkar). The Government’s ‘Value for Money Assessment’ quotes the same figures as being in “2012 prices, discounted to 2012”. It also says that on its most realistic projections, it means around £12 from consumers’ annual energy bills will go towards supporting the plant in 2030.
42 National Audit Office, Nuclear Power in the UK (12 July 2016): https://www.nao.org.uk/wp-content/uploads/2016/07/Nuclear-power-in-the-UK.pdf [accessed December 2016]
43 The discount rate is used to convert future costs and benefits into present values. It is a separate concept from inflation and is based on the principle that people prefer to receive goods and services now rather than later. The discount rate used by the Department was 3.5 per cent and the one used by the National Audit Office was 0.7 per cent. Both rates are taken from HM Treasury’s Green Book: HM Treasury, Green Book, (July 2011): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220541/green_book_complete.pdf [accessed February 2017]
44 The National Audit Office said that the fall in the projected wholesale price was mainly due to reductions in the expected price of fossil fuels and also increased use of renewable sources which produce electricity at near zero marginal cost: National Audit Office, Nuclear Power in the UK, op cit.
45 Q 133 (Dermot Nolan)
46 Q 7 (Prof Dieter Helm)
47 The Climate Change Act 2008 mandates the Committee on Climate Change to set five yearly carbon budgets that provide interim targets towards achieving the Act’s goal of reducing the 1990 level of carbon emissions by 80 per cent by 2050. See Box 6 for more detail on the carbon budgets.
48 Department for Business, Energy and Industrial Strategy and Ofgem, Calculating Renewable Obligation Certificates (ROCs) (31 March 2013): https://www.gov.uk/guidance/calculating-renewable-obligation-certificates-rocs [accessed January 2017]
49 Department for Business, Energy and Industrial Strategy, Fuel used in electricity generation and electricity supplied (22 December 2016), Table 5.1: https://www.gov.uk/government/statistics/electricity-section-5-energy-trends [accessed January 2017]
50 Ofgem, Ofgem Puts Forward New Approach To Funding Green Generation (22 January 2007): https://www.ofgem.gov.uk/ofgem-publications/76523/16662-r5.pdf [accessed December 2016]
51 Q 16 (Lord Turner of Ecchinswell)
54 Department of Energy and Climate Change, Changes to Renewable Subsidies (17 December 2015): https://www.gov.uk/government/news/changes-to-renewables-subsidies [accessed January 2017]
55 The two schemes will operate alongside each other until 2037 when Renewable Obligation certificates will cease to be awarded to generators. The amount of certificates that electricity suppliers will be required to purchase is adjusted each year to reflect the number awarded. This requirement will therefore reduce as the number of generators receiving certificates decreases as deals under the scheme expire.
56 The Government created a company (Low Carbon Contracts Company Ltd) which acts as the counterparty to the contract for difference. For the purposes of calculating the difference, the market price is determined by reference to a “composite of wholesale price indices”: Department for Business, Energy and Industrial Strategy, Hinkley Point C (29 September 2016): https://www.gov.uk/government/collections/hinkley-point-c [accessed December 2016]
57 Department for Business, Energy and Industrial Strategy, Hinkley Point C, op cit.
58 National Audit Office, Early contracts for renewable electricity (27 June 2014): https://www.nao.org.uk/wp-content/uploads/2014/06/Early-contracts-for-renewable-electricity1.pdf [accessed January 2017]
59 See from para 148.
61 Q 20 (Lord Lawson of Blaby)
62 Q 73 (Peter Atherton). It was Carrington Power Station in Manchester.
63 Q 3 (Prof Dieter Helm)