Cornwall Insight responds to the announcement of an Energy Bill in the Queen’s Speech

The Queen’s Speech this week included a much-anticipated announcement that an Energy Bill will be introduced at some point over the next parliamentary session.

The Bill is a logical conclusion of policy development in the period since the net zero commitment was made in the summer of 2019. It accommodates support for the government’s preferred production technologies alongside more recent plans to address security of supply. Notably, the Bill will formalise the creation of the Future System Operator (FSO).

The concerns on security of energy supplies are reflected in the government’s desire to lend itself powers to “give directions to require information from and provide financial assistance to core fuel sector businesses to ensure resilience and continuity of fuel supply”. The details on how it is to achieve this objective will be very important as the UK has relied on market signals and commercial law to bring forward investment in security of supply and decarbonisation since the 1980’s.

The extension of the Default Tariff Cap has been well sign posted particularly since wholesale energy prices started to rise so sharply in spring 2021. The original legislation for the cap saw it time limited and with tests for its removal. Hopefully, the conditions which have triggered its extension will pass and it will be important to judge if and when the market can be freed up for the full benefits of innovation that technology promises for consumers, producers and providers of flexibility.

There are important new commitments to fund innovation in “state-of-the-art business models for Carbon Capture Usage and Storage transport and storage, low carbon hydrogen and industrial carbon capture” as well as heat pumps. Balancing the needs of investors to deliver the innovation with those who will need to fund this will be a challenge, but the delivery of a thriving UK offshore wind sector shows the scale of prize that could be won.

The FSO is already being positioned as a key enabler of net zero. Additionally, the confirmation of competition in onshore electricity networks opens the prospect of new business models to drive innovation and value for network users. Likewise confirming Ofgem’s regulatory role for heat networks is an important step to reassure consumers and investors that a stable framework will emerge as we seek to transition away from gas.

There is a lot in the Bill that builds on the framework that started with the Ten Point Plan for a secure transition to decarbonised energy. International energy markets are the most unstable they have been for a long time, and consequently we have seen the government introduce powers that cap domestic tariffs and manage the risks of fuel supply disruption. Investors and consumers need a stable framework for a prosperous energy economy and the government will need to work carefully to balance the short-term tensions with the long-term objective of net zero.  

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