EIC NewsThe Energy Market Reform (EMR) White Paper has been published and suggests that energy bills need to increase around 30 per cent by 2030. This would help fund a major investment scheme needed to ensure security of supply and move to a low carbon economy. The Government has underlined that the increase is less than the +40 per cent increase that would occur if nothing was done.
The EMR has been developed after extensive consultation. Part of the proposals had already been unveiled in the last Budget, this being the development of a Carbon Price Floor. However, The Department of Energy and Climate Change (DECC) has indicated that the package as a whole presents some of the largest changes in the market since privatisation. An estimated 110 billion pound is needed to replace aging plant and reinforce the grid by 2050. The focus, as expected will be on developing new renewable generation, nuclear power stations, as well as carbon capture and storage technologies. The Government has stated that these measures will add 160 pound per year to domestic energy bills compared to current costs of around 500 pound. However, if nothing is done, costs could rise 200 pounds as energy supplies tighten and the UK relies more on imports.
In addition to the Carbon Price Floor, the EMR proposes the introduction of long-term contracts – Contracts for Difference (CfDs) to provide stable investment signals for new generation. In addition, there will be an Emissions Performance Standard (EPS) for plant, putting a new limit on emissions from UK generators.
Furthermore, there will be a Capacity Mechanism, although the Government seems unsure on the nature of this element of the EMR. In essence, it will provide income for generation to be available, even though it does not operate. This would be needed for supply security and to offset the intermittency of some of the renewable energy technologies. DECC indicates that this mechanism should also include support for demand-side responses. This holds the potential for consumers to benefit further from energy efficiency measures.
The Government intends to start discussing this White Paper in the next legislative session starting May 2012. It then intends to bring any new legislation into force in 2013-2014. In the meantime, the White Paper will be consulted upon further.
Commenting on the EMR, Secretary of State for Energy and Climate Change Chris Huhne stated, "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." He added, "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."