DECC Stakeholder Bulletin Special – Electricity Market Reform Consultation

DECC Stakeholder Bulletin Special

Electricity Market Reform Consultation

16 December 2010

Please share this information with colleagues and stakeholder organisations who may be interested.  If you would like to be added to the monthly DECC stakeholder mailing list please email  stakeholders@decc.gsi.gov.uk.

Today the Department of Energy and Climate Change is launching a consultation on fundamental reforms to the electricity market, to ensure the UK can meet its climate goals and have a secure, affordable supply of electricity in the long term.  We would like to thank those stakeholders who have worked with us to develop the current reform proposals and are encouraging contributions to the consultation (please see link below), which closes on 10th March 2011.  HM Treasury is separately consulting on the proposals for a carbon price floor (please see link below), which form an important part of the Government’s package of reforms for the electricity market. This consultation closes on 11 February 2011.

More than £110 billion of investment is needed in new power stations and grid upgrades over the next decade – this is double the rate of the last ten years.  We face rising demand, shrinking supply and ambitious emissions reduction targets.  Put simply, the current market is not fit to deliver this.  Our package of reforms lays the foundations for a sustainable economy, bringing billions in investment to the UK through greater certainty, safeguarding jobs up and down the supply chain, and giving the UK real competitive advantage in advanced energy technologies.

Our preferred reform option is built on four policy instruments:

1. Greater long term certainty around the additional cost of running polluting plant through a carbon price floor.  Proposals from the Treasury to provide greater support and certainty to the carbon price will increase investment in low carbon generation by providing a clearer long term price for carbon in the power sector.

2. Long term contracts for low carbon generation will make clean energy investment more attractive still.  Through a proposed ‘contract for difference’ Feed In Tariff, the Government will agree clear, long term contracts, resulting in a top up payment to low carbon generators if wholesale prices are low but clawing back money for consumers if prices become higher than the cost of low carbon generation. 

3. Additional payments to encourage the construction of reserve plants or demand reduction measures (so-called ‘negawatts’) to ensure the lights stay on.  A Capacity Mechanism will ensure there remains an adequate safety cushion of capacity as the amount of intermittent and inflexible low carbon generation increases.

4. A back-stop to limit how much carbon the most dirty power stations - coal - can emit.  An Emissions Performance Standard will reinforce the existing requirement that no new coal is built without carbon capture and storage.

The consultation opening today invites stakeholders to tell us what they think of the preferred package of reforms.   Responses to the consultation will help ensure that the reform measures are well-designed and cost-effective, whilst minimising the impact on consumers and business.

Final recommendations will be published in a White Paper in late spring 2011, and the reforms introduced before the end of this Parliament.

The Electricity Market Reform Team

16 December 2010

---

Full statement and consultation details 

• Responses on the DECC Electricity Market Reform are invited by 10 March 2011, with final proposals expected in a White Paper in late spring 2011.  The full consultation document and Parliamentary statement are available at http://www.decc.gov.uk/en/content/cms/consultations/emr/emr.aspx .
  
• HM Treasury is consulting on the proposals for a carbon price floor. Responses to these proposals should be made to the Treasury by 11 February 2011, with final decisions expected in the Budget on 23 March 2011.  The full consultation document is available at http://www.hm-treasury.gov.uk/consult_carbon_price_support.htm.
  
• A parallel review of Ofgem and the energy regulatory framework will clarify the respective roles of the Government and Ofgem.  Responses to the initial Call for Evidence on the Ofgem Review are being published today on: http://www.decc.gov.uk/en/content/cms/consultations/ofgem_review/ofgem_review.aspx.
  
• Today also sees the announcement of the Government’s Response to the Statutory Consultation on the Renewables Obligation Order 2011. Changes to the Renewables Obligation are being made in the context of the EMR consultation and the Government Response sets out our final decisions, which can be seen here: http://www.decc.gov.uk/en/content/cms/consultations/ro/ro.aspx