Electricity market reform white paper published
The government has added more detail to the four pillars of its proposals for electricity market reform and set out indicative timetables for measures contained in the white paper.
The department of energy and climate change said that policy will be finalised by the end of 2011, with primary legislation to start in 2012, and following secondary legislation, statutory instruments in force by the end of 2014.
The body that will set the contracts for difference should be established ahead of that date, with the first contracts for difference signed around the same time. Decc aims for the capacity mechanism to be in place by the start of 2015, following the carbon floor price in place by spring 2013 and the Emmissions Performance Standard, which the paper said should allow gas plant to be built but discourage coal, in autum 2013.
The government also gave detail on transitional measures for current market arrangements. Existing generation under the Renewables Obligation (RO) will be grandfathered and will be allowed to chose whether to receive the RO or a feed-in tariff (CFD) until the 31 March 2017. After that date, the RO will close to new applications. The RO support for all technologies will be grandfathered at the rate applicable at that cut off date.
Alongside the White paper, Decc published a renewable roadmap, which showed an increased focus on biomass, as well as a final report on its review of Ofgem.
More details here:
By Ronan O Regan, director, energy and renewables, PwC
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
By Volker Beckers, CEO, RWE Npower
Government has shown today that they have grasped the scale of the energy challenge in this country and the urgency with which this challenge must be tackled. There is no plan B: the EMR can and must be made to work. Failure will be bad news for the environment, for industry, and, most notably, for customers.
We welcome today s announcements as a positive indication of the direction of travel. ... However, it is vital that both customers and investors can see where their money is going. The scale of investment required in the UK is unprecedented. The EMR White Paper shows progress on climate change and security of supply, but we must have more focus on affordability.
I am still concerned that Government is trying to pull too many legislative levers at once and, in doing so, is running the risk of losing focus.
By Richard Lloyd, Which? executive director
At a time when many people are struggling with rising costs, it s vital that they are given the right help to take control of their energy bills.
We support the emphasis on affordability and attempts to tackle increased costs, but the Government must be as clear as possible with consumers about how far prices will rise in comparison to today s energy bills. It must also expand on how these proposals* will work in practice. These essential details will determine whether consumers are getting a fair deal.
By Dr Tim Fox, Head of Energy and Environment at the Institution of Mechanical Engineers
The reforms announced today are a necessary step to help put us on course to delivering an energy system which is both secure and low carbon. But the energy price rises we are already seeing, and are likely to see more of for many years to come as a result of these reforms, will be painful for UK householders and industry.
Measures must be taken to protect vulnerable consumers and strategic industries and government needs to ensure it doesn t force energy intensive industries out of the UK and into countries with less ambitious emissions reduction targets. This is of benefit to neither the UK economy nor the environment.
By Dr Paul Golby, Chief Executive of E.ON UK
We welcome today s publication and believe that it makes a good start in stimulating the growth in low carbon generation that we desperately need in the UK. But we cannot be complacent, it s important that this is driven forward to ensure a cleaner energy future for everyone.
And, while the onus on the energy companies is to produce, transport and supply energy as efficiently as possible, we must also remember ... this is also about helping our customers who have a vital role to play in all of this.
By becoming more energy fit by insulating their homes, moderating their energy usage and by generating their own power our customers can do their bit to reduce both their bills and also their carbon emissions
After all, the cheapest power station is the one that we don t have to build.
By Phil Levermore, Ebico
The Government s proposals will have a direct impact on fuel poverty as they will lead to an unavoidable increase in domestic fuel bills by 50% over the next 18 years. If the reforms are to achieve what they set out to do without casting hundreds of thousands more households into fuel poverty, more has to be done to protect poorer households from rising energy bills.
By Maria McCaffery, RenewableUK s Chief Executive,
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.
By Neil Cornelius, energy team, Deloitte
Overall the White Paper reiterates and expands on the Government s belief in and commitment to a massive shift to low carbon generation in the UK. However, there are still a number of key details to be defined before investors are likely to share this commitment .
Crucially, the absence of clarity on the future price setting of CfDs through auctions and inter-technology competition will leave investors, developers and suppliers uncertain about the future market for their products. This uncertainty may be compounded by the requirement to re- define the funding envelope for CfDs at each budget and spending review.
By Nathan Goode, Head of Energy, Environment and Sustainability at Grant Thornton UK LLP
"The nuclear question is finally out in the open with the declaration that there will be 'no public support unless similar support is available to other low carbon technologies'. A significant number of key decisions have been deferred to a later stage.
A White Paper on a subject of such crucial importance should be accessible to the general reader. It is critical that the Government gets its message across to the public, and in my view it largely fails on this front. Overall, whilst the direction of travel may be the right one, the diffidence and obscurity which characterise this document do no-one any favours."
By Duncan Sinclair, Director at Redpoint Energy
The Electricity Market Reform sits at the heart of a wide range of interacting policy and regulatory initiatives designed to transform the energy markets over the next few years. Today s White Paper is an important milestone in laying the foundation for a future decarbonised electricity system. Whilst there are still a number of details to be finalised, such as the role for, and design of, capacity mechanisms and potentially more technical changes to market arrangements that may be needed in the future, we hope that it provides a basis for the industry to move forward.
By Jeff Chapman, Chief Executive of the CCSA
A Contract for Difference Feed in Tariff, index-linked to fuel price, is the right mechanism to support CCS now and into the future, and we would welcome this mechanism as part of the EMR package.
The CCSA estimates that at least 20-30GW of fossil-fuel power generation capacity fitted with CO2 capture and storage will need to be installed to meet the UK s aim of largely decarbonising its power sector by 2030.
Delivering that amount of CCS capacity by 2030 is challenging but achievable and industry will rely on this mechanism to deliver a bankable incentive. The White Paper establishes the world s first support mechanism for all low carbon technologies that enables CCS to be deployed on a par with other options.
By Boaz Moselle, Senior Managing Director, F T I Consulting
Some of the individual proposals make sense, but taken together, and along with existing measures, the proposed reforms will make ours the most complex and opaque power market in the world. The risk is then that we end up in a no-man's land, with neither the efficiency of a market-driven system nor the certainty of central planning, but instead the worst of both worlds.
Euan McVicar, Energy and Infrastructure partner, McGrigors
For some, the adoption of a Contract for Difference (CfD) FIT regime will be disappointing as it will be seen as more complex than other models consulted on. However it is to be welcomed that the consultation has taken account of comments in response to the consultation that different forms of generation need to be considered differently if a CfD model is adopted. The recognition of the different needs of intermittent generation (such as wind) and baseload (such as nuclear) is very welcome.
We remain concerned however with the absence of a commitment on suppliers to buy low-carbon electricity. Reliance on Ofgem's ongoing market liquidity review will be of limited reassurance to the marketplace.
Many will remain disappointed that a definitive position on the Capacity Mechanism remains some time away. The potential impact of the Capacity Mechanism on electricity prices should not be underestimated."
By Vincent de Rivas, chief executive, EDF
It encourages investment in generation which is both low carbon and not dependent on fossil fuel prices. This is good news for customers, policy makers and investors.
Trust is the essence of a healthy market. Therefore it is important to continue to have a dialogue about energy costs. Consumer bodies, the regulator, industry and Government need to work together to build understanding. Renewing Britain s ageing energy infrastructure will have a cost. Electricity Market Reform means that cost will be kept to a minimum.
There is widespread agreement on the need for change. We now need to continue to work to make sure the White Paper becomes legislation as soon as possible.
Mark Hanafin, MD, Centrica Energy
"The announcement is an important step in delivering a secure, low carbon electricity system for the UK. There remains much detail to resolve so that investors can have confidence that the tax and regulatory environment makes the UK energy sector a good place to invest.
"These measures come at a cost and it is vital that all of us - Government, regulators and the industry - are open and transparent with the public about the true impact of these changes."
Ian Marchant, chief executive, SSE
Any changes to the electricity market arrangements have to be carefully thought through, in a way which avoids unintended consequences and is supportive of the investment that is needed now and in the next few years. It is on this basis that we will ultimately judge the white paper as a whole and to ensure this is achieved we will continue to work with the UK government and other stakeholders.
By Richard Postance, partner and head of Smart Grid, Ernst & Young
The White Paper touches upon the need to develop smarter grid and transmission infrastructure. Today s grid will not be able to cope with the evolving demands of a low carbon economy whether that s the shift to electric vehicles or the greater use of inflexible or unpredictable power sources like nuclear and wind. It is imperative that the Government incorporates Smart Grid plans into the wider electricity market framework. Smart Grid holds the key to our future electricity supply and, by intelligently integrating all electricity users and suppliers, will deliver this supply more sustainably, efficiently and reliably.
By Jim Kapsis, Director of Market Development, Opower
If the UK government is looking for the best deal for taxpayers, it should ensure that efficiency, which is the most affordable energy resource, is part of the generation mix. What is cheaper than coal, gas, wind, and solar power, has zero emissions, and is domestically generated - the energy we don't use.
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