Historic reforms to electricity market revealed

The government has unveiled a series of historical reforms to the UK electricity market

13/07/2011

The Department of Energy and Climate Change has unveiled some of the biggest reforms to the UK electricity market since privatisation as the government aims to move the UK economy away from a “high risk, high-carbon future.”

The White Paper, launched alongside the Renewables Roadmap, sets out key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables and carbon capture and storage. 

 
Key reforms

Key reforms in the package include:

• The announcement in Budget 2011 that the government would put in place a Carbon Price Floor to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now;
• The introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A contract for difference approach has been chosen over a less cost-effective premium feed-in-tariff;
• An Emissions Performance Standard (EPS) set at 450g CO2/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also to ensure necessary investment in gas can take place; and
• A Capacity Mechanism, including demand response as well as generation, which is needed to ensure future security of electricity supply. We are seeking further views on the type of mechanism required and will report on this around the turn of the year.

“This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant,”

Energy Secretary Chris Huhne

DECC estimates that with the market left as it is now, domestic electricity bills will be around £200 higher in 2030 compared with today’s average annual household bill (about £500). The market reform packages published today limit this increase to £160 – £40 lower than it would otherwise be.

 
Announcing the White Paper to Parliament, Energy and Climate Change Secretary Chris Huhne said:

“We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts.”

“This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant,” he added.

To view Mr Huhne’s full Ministerial statement, click here 

 
Renewables Roadmap

The government estimates that a quarter of the UK’s generating capacity will be shutting down over the next ten years as old coal and nuclear power stations close. More than £110bn in investment is needed to build the equivalent of 20 large power stations and upgrade the grid.

The Renewables Roadmap, published alongside the EMR White Paper, sets out an action plan to accelerate the UK’s deployment and use of renewable energy. It identifies the following eight technologies as key to helping the UK meet its 2020 target: onshore wind; offshore wind; marine energy; biomass electricity; biomass heat; ground source heat pumps; air source heat pumps; and renewable transport. 

 
“We have consulted widely and we believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources right here in the UK,” the Energy Secretary said.

“A new generation of power sources including renewables, new nuclear, and carbon capture and storage, along with new gas plants to provide flexibility and back-up capacity, will secure our electricity supply as well as bring new jobs and new expertise to the UK economy,” he concluded.

For more information, click here 

 
Reaction

John Cridland, CBI Director-General, said:

“This White Paper is an important step in the right direction, but the hardest work is still to come. There is much to do if we are to secure the £200 billion of essential investment needed in our energy infrastructure, including a mix of nuclear, clean coal, gas and renewables. The big decisions remain to be taken.”

Maria McCaffery, RenewableUK's Chief Executive, welcomed the reforms:

“The Secretary of State's announcement provides a huge boost to the wind industry. It will increase investor confidence, allowing the sector to expand more rapidly. This will enhance the UK's capacity to generate clean, green energy to meet our CO2 reduction targets, creating a low-carbon economy. There will be massive growth in jobs as a result of this expansion. Our evidence-based studies show that 90,000 people will be working in the wind and marine energy sector in ten years time. Today's announcement will allay several industry concerns and provide a basis for continued engagement between industry and government.”

More to follow…

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