Treasury theology will stifle energy investment The lights could go out in Britain before the end of this decade if hundreds of billions are not invested in new electricity generating capacity. EU law requires us to shut our most polluting power plants and ageing nuclear reactors must be replaced. The government plans to do this by giving power companies a guaranteed price for low-carbon electricity to try and reduce the risk of investments with high upfront costs, such as nuclear plants or offshore wind farms. Ministers say this will secure clean and reliable electricity at a minimum cost to consumers. The energy and climate change select committee has been examining the draft energy bill, which will establish this framework, and many witnesses have warned that the proposals will in fact raise the cost of capital, hamper competition and deter investment. In its original consultation the Department for Energy and Climate Change indicated that government would underwrite the new long-term contracts, lowering the cost of capital by acting as the sole triple A rated counterparty. But this proposal rang alarm bells in the Treasury and its simple and effective design has been struck out of the draft bill. Now ministers have devised an alternative contract system so complex and confusing it may not be legally enforceable, let alone bankable for investors. Under the latest plans the so-called "contracts for difference" - a cornerstone of the electricity market reforms - are no longer government-guaranteed. Instead there will be multiple counterparties, spreading the liability across various energy companies. The certain consequence is that electricity companies will be forced to pay more to borrow when building power stations and consumers will end up paying the price. All because of arcane theology about what constitutes government debt. My committee also heard that the new contract system could stifle competition and reinforce the dominance of the "Big Six" energy companies. The government claims it wants to increase competition and encourage new entrants to the electricity market. But witnesses told us that this energy bill may squeeze smaller independent companies out of the electricity market and the result may be even greater levels of vertical integration - where big companies both generate electricity and supply customers. Smaller renewable energy projects, such as community-owned wind farms or solar panels, could be especially hard hit. Another potentially acute problem concerns the cap the Treasury has imposed on the green levies passed on to consumers in energy bills. An unintended consequence of this levy cap may be that costs for consumers rise. This will ration the number of contracts available, giving developers new uncertainty as to whether a contract will be available when a project is finished. They will accept this risk only if the return they can earn is higher. So the result will be either less investment and capacity or higher prices for consumers. The Treasury has not replied to our questions about the unintended consequences of this and other policies. This was worrying. The energy bill is the biggest shake-up of the electricity market since privatisation. A lot is riding on it. If investors do not like the framework established by the bill they may focus on markets where they see less regulation and better rewards. If the Department of Energy and Climate Change can escape the control of the Treasury, it could establish a framework that provides confidence, certainty and long-term stability, allowing Britain to attract multibillion pound investments. Instead of imposing policies with perverse consequences, the Treasury could use the government's triple A credit rating to keep the costs of energy investment down for the benefit of all consumers. If it set out the funding to be available under the levy cap until 2020, developers would be reassured. The government should also set a clear target to largely decarbonise the electricity sector by 2030, giving investors certainty about the direction of energy policy. We believe it is still possible to make the government's energy policy work. If the DECC and Treasury do not fix these problems before the energy bill is debated in the autumn, my committee will seek to amend it in parliament. This legislation is too important for Britain's electricity industry and for the wider economy to mess up. The writer is chair of the energy and climate change select committee