MPs on the Energy and Climate Change Committee (ECCC) have said the Treasury has made the government’s draft Energy Bill ‘unworkable’ and could pose companies with an ‘unacceptable’ level of risk.

The draft Bill, first released in May by Energy Secretary of State Edward Davey, was introduced with the aim of developing a low carbon energy industry in the UK and bringing in £110 billion worth of investment in new energy plants.

Initially met with heavy criticism from the energy industry, who said the reforms posed unnecessary price rises, the bill has now been further lambasted by the ECCC in a report that claims that the government ‘has fallen into the trap of focusing far too closely on the supply side of the energy system, while neglecting to consider the contribution that demand-side activities could make to security and climate change objectives’.

‘The pre-legislative scrutiny process has identified some serious concerns with the proposals as they currently stand, which could make the reforms unworkable if they are not resolved… we believe that it is difficult but possible for the Government to revise the plans into a workable model’, says the report, which goes on to call the lack of specific outcomes and objectives ‘a major flaw’ in the bill.

In a statement released today (23 July), MP Tim Yeo, Chair of the Energy and Climate Change Committee said: "The government is in danger of botching its plans to boost clean energy, because the Treasury is refusing to back new contracts to deliver investment in nuclear, wind, wave and carbon capture and storage."

An opinion furthered by Charlotte Morton, Chief Executive, of The AnaerobicDigestion and Biogas Association (ADBA): "The Energy Committee are right - George Osborne's Treasury has never appreciated or backed the potential that green growth offers the UK's economy.

"For a relatively small up-front investment we could create jobs, infrastructure and export markets, as well as tackling climate change and securing the future of energy supplies. The Energy Bill needs to properly recognise and drive low-carbon energy such as biogas as part of this green economic revolution: with the right support, anaerobic digestion alone could employ 35,000 in the UK."

The Department of Energy and Climate Change’s (DECC) report blames the Treasury for intervening in the Feed-in Tariff with a ‘Contracts for Difference’ (CfD) policy, which was expected to see government-guaranteed, long-term contracts give companies a degree of ‘revenue certainty’, but has since ‘become so complex that the proposal has now arguably become unworkable.’

‘There are three major problems with the CfD model that is currently proposed by DECC’, finds the report. ‘First, the payment model based on a "synthetic" counterparty is not bankable because there is genuine uncertainty about whether any contracts would be legally enforceable. Second, the impact of "rationing" CfDs under the Treasury's levy cap will be to increase development risk, possibly to the point that the project pipeline could dry up. Finally, the removal of an obligation to buy renewable energy could compromise the ability of independent generators to take part in the market, which could lead to fewer players and greater levels of vertical integration.

‘Indeed, the Bill and associated documents do not give sufficient consideration to the risk of negative impacts on smaller scale players in general’.

The bill will now spread liability across energy companies instead, leading MPs to urge the government to underwrite the new contracts in order to keep the costs of energy investment down for consumers.

"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 Yeo.

The Committee is also concerned that the new contract system will prevent new entrants into the electricity market from competing with the ‘Big Six’ energy companies: British Gas; Scottish Power; Eon; Npower; EDF; and Scottish & Southern.

"Community owned energy projects and small independent generators are in danger under the current plans of being squeezed out. The Committee is worried that decisions about support for new nuclear power stations are being made "behind closed doors" and calls for an independent expert to inspect any agreements to ensure that they are delivering value for money.”

“The government should also set a clear target to largely decarbonise the electricity sector by 2030 to provide investors greater certainty about the direction of energy policy. If the Energy Bill does not [do so]… then the UK may miss one of the biggest opportunities it has to create a low-carbon economy in the most cost effective way", said Yeo.

“The government has a lot of work to do over the summer to make sure that the Bill is fit for purpose in the autumn and is not subject to any further delays."

The full ECCC report can be found on Parliament’s website.