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Decc unveils energy market reforms

The government today announced a series of sweeping measures to reform the electricity market to encourage low carbon generation.

With a quarter of the UK’s generating capacity 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. In the longer term, by 2050, electricity demand is set to double, as we shift more transport and heating onto the electricity grid. Business as usual is not therefore an option.

The Electricity Market Reform White Paper published today 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. The Renewables Roadmap published alongside this outlines a plan of action to accelerate renewable energy deployment - to meet the target of 15% of all energy by 2020 - while driving down costs.

“We have consulted widely and we believe our reforms represent the best deal for Britain,” said energy secretary Chris Huhne.

“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.

“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 bringing new jobs and new expertise to the UK economy.”

Key elements of the reform package include:

  • Carbon Price Floor (announced in the 2011 budget) to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low carbon generation now;
  • 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;
  • 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 ensure that necessary investment in gas can take place; and
  • Capacity Mechanism, including demand response as well as generation, 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.

Publication of the White Paper marks the first stage of the reform process. The Government intends to legislate for the key elements of this package in the second session of this Parliament, which starts in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so that the first low-carbon projects can be supported under its provisions around 2014.

The Government will put in place effective transitional arrangements to ensure there is no hiatus in investment while the new system is established. Once established, the white paper sets out how the efficiency and effectiveness of the reforms will continue to be evaluated.

The electricity market reform package will minimise the impact on bills by insulating the UK from volatile fossil fuel prices and providing investors with the certainty they need to raise capital more cheaply. Estimates are 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.

Electricity market reform will be underpinned by a series of measures to improve energy efficiency, including the flagship Green Deal programme, the first scheme of its kind in the world, aimed at cutting carbon and bills in millions of homes across the UK. Market reform will also be supported by a strategy for future electricity networks and work led by Ofgem to improve competition, to move away from the current position where around 99% of UK customers are supplied by only energy six companies. DECC has today published the final report of the Ofgem Review, following publication of the Summary of Conclusions in May. This final report provides further detail on how the Government will seek to strengthen the regulatory framework, bringing greater clarity and coherence to the distinct roles of Government and the energy regulator.

The Government and Devolved Administrations are also today publishing the Renewable Energy Roadmap. The Roadmap sets out a comprehensive programme of targeted, practical actions to tackle the barriers to renewables deployment, enabling the level of renewable energy consumed in the UK to grow in line with our ambitions for 2020 and beyond. This will mean over a four-fold increase in our level of renewable energy consumption by the end of the decade.

The Government has also asked a new industry-led Task Force to reduce the costs of offshore wind to £100/MWh by 2020. That level of cost reduction will unlock the full potential of the UK’s offshore resources, making it possible to deliver up to 18GW by 2020 and open up the 30 – 40GW of low carbon generation that will be necessary in the 2020s to keep the UK on track to deliver the 4th Carbon Budget.

Alongside these actions the Government is also announcing the signing of a new Memorandum of Understanding between Government departments, aviation organisations and industry to mitigate the potential impacts of wind power on radar infrastructure that it is estimated could impact up to 5GW of onshore and 7GW of offshore wind capacity.

Readers' comments (1)

  • Yet more nonsense. Details such as below should be published in the NCE for the proper balanced debate the profession needs, and for the benefit of the public we supposedly serve:

    The problem is not simply one of rural impacts and disruption. The UK Energy Policy is incompatible with the UK Economic Policy which must have a far higher priority. It is driving up all our costs, putting even more pressure on all budgets and making the UK even more uncompetitive. We need cheaper power and not massively more expensive power! Why, also, are we unilaterally committed to far greater and quicker CO2 reductions than others, even supposing CAGW is a valid theory? If we must pursue these CAGW driven policies then let us at least do it with far more efficient, non-subsidised works, producing much cheaper power.
    DECC data shows UK Power emits only 39% of UK’s CO2 emissions, and basic calculations based on this data show s that, with the recorded 21% 1990 Power Generation CO2 savings already achieved to date, simply and quickly changing all Coal Fired Stations to equal capacity Gas Turbine Stations, i.e. with no more Wind Turbines other than those already in operation, will save 48% of our 1990 Power Generation CO2 emissions. It is then up to others outside of the Power Industry, responsible at present for the remaining 61% of our present CO2 emissions, to achieve a similar 48% reduction.
    The DECC data also identifies that 6000 monster 2.5 MW Wind Turbines replacing all Coal Fired Plants, instead of Gas Turbines, gives only a further 2% reduction of UK Total 1990 CO2 emissions, and a further 9000 monster 2.5 MW Wind Turbines replacing all Gas Turbines would save only a further 3.5%. It appears that we are in fact providing massively more capacity in Wind Turbines than the existing Power Stations being replaced to overcome this grotesque Wind Farm system inefficiency. This is despite the fact that independent studies have identified that the Wind Farm total costs per unit power generated – including the massively extensive cabling from Turbine to Grid and the required standby Gas Turbines for no/low winds, are 100-200% more expensive than other systems - such as Gas Turbines. The monies for CAGW related costs, taxes and subsidies associated with this current UK policy could be better used elsewhere, and is one of the major reasons why power costs are, and will continue, escalating out of control for many years to come!
    With the radically different policy proposed here, time and the massive savings would be provided for developing future cheaper systems – including better, UK designed and built Nuclear Reactors and new UK Gas Turbine design and manufacturing capability. UK R&D development of massive shale gas deposits in the UK and Eastern Europe is also urgently needed, together with UK gas storage facilities, to reduce reliance for gas on Russia and others. Gas is needed, even for existing and replacement Gas Turbines and the Gas Turbines required within Wind Farm Systems. USA experience shows shale gas prices are de-coupling from Oil Industry prices and are falling, and not increasing, in price!
    Ask yourself what Germany will now do without even the nuclear contribution we have; or how we will we compete even with France with its ongoing and extended commitment to cheaper nuclear power; or even when China, India and other developing nations will stop continually emitting more CO2 from their new Power and Industrial Plants each few days than we can save in a year!? Where is the necessary viable UK policy, designed to compete with others and help with re-generating the UK and its wealth?
    Huhne should be removed from office – his lack of credibility and his ineffectiveness, already recorded, increases daily!

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