The Government has published the Technical Update to its White Paper on Electricity Market Reform. The paper outlines key decisions to reform the UK’s electricity market to drive low carbon investment and boost energy security.
The update details the Government’s decision to legislate for a capacity mechanism in the form of a Capacity Market. The introduction of a capacity mechanism will ensure that consumers avoid the higher prices that could result from tight capacity margins.
Gaynor Hartnell, Chief Executive of the REA said: “We had called for a market-wide capacity mechanism, so we welcome this decision. It is not appropriate to single out particular types of generation that contribute to security and others that do not. No generation can be relied upon 100 percent at any one moment.”
The analysis and engagement of the White Paper has led the Government to conclude that the National Grid will be best placed to implement both the feed-in tariffs with Contracts for Difference (FiT CfD) and Capacity Market, as set out in the Electricity Market Reform White Paper. Hartnell replied: “We’re happy to see the separation of roles, with Government setting out objectives and an independent body – National Grid – being charged with their implementation.”
Although The REA welcomed the separation of roles, Hartnell questioned the extent of the National Grid’s influence, asking: “If the Government sets the prices for the feed-in tariff contracts and sets out its expectation on how much capacity it anticipates, what does it expect National Grid to do if things don’t go to plan? What will happen if it’s clear there will be an overshoot in capacity? Conversely, if the price is too low and developers aren’t interested in signing contracts, can it do anything to help?”
Energy and Climate Change Secretary Chris Huhne said: “Today marks a milestone in delivering the reforms we need to move to a low carbon economy while keeping the lights on and costs for consumers down. The UK faces a huge energy investment challenge over the coming years, with a fifth of our generating capacity coming to the end of its working life and electricity demand set to double.
“We want to give certainty to investors to develop the mix of clean energy sources that will power the UK in the years to come.”
Hartnell welcomed the Technical Update, stating: “We’ve got a bit more clarity today but look forward to hearing more early next year and working with Government on how the contracting arrangements take shape.”
A further update on Emissions Performance Standards and FiT CfD will be published early next year. The Government hopes that its proposed reforms to the electricity market will wean the UK off its reliance on imported oil and gas by nurturing new, low-carbon generation power sources. Critics of the White Paper think that there should be more emphasis on renewables and that more could be done to break the dominance of the ‘Big Six’ over the market.
