Grid operator National Grid has been appointed delivery body for the government’s much anticipated energy bill, which has released in draft yesterday.
National Grid will administer the government’s two new market mechanisms aimed to provide new investment in low carbon generation – feed-in tariffs with contracts for difference and a capacity mechanism (see box). National Grid will also provide analysis for the government to make decisions over energy projects.
The Department for Energy and Climate Change (Decc) unveiled its long awaited draft energy bill yesterday designed to attract £110bn investment in low carbon generation.
Energy secretary Ed Davey said the reforms were required otherwise there wouldn’t be investment in new generation raising the possibility of electricity shortages after 2016 when coal-fired power stations will begin to close.
“Leaving the electricity market as it is would not in the national interest,” said Davey. “If we don’t secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change.”
The full bill is expected to be introduced into Parliament later this year with Royal Assent expected in 2013. Low carbon generation projects will be expected to receive support from 2014 onwards.
Energy reform: the highlights
The main elements of the Bill are:
Feed-in tariff (Fits) with contracts for difference (CfD)
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 capacity market will be established to reduce the likelihood of future blackouts by ensuring there is sufficient reliable capacity to meet demand, ensuring that consumers continue to benefit from reliable electricity supplies at an affordable cost.
These mechanisms will be supported by:
An Emissions Performance Standard (EPS) that will provide a regulatory backstop to prevent construction of new coal plants which emit more than 450g/kWh i.e. the most polluting form of electricity generation.
A 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. It places an initial value on the price of carbon of around £16/tCO2 (2009 prices) in 2013, which will rise to £30/tCO2 (2009 prices) by 2020.