UK Government outlines long-awaited electricity market reform

The UK Energy and Climate Change Secretary Chris Huhne yesterday afternoon outlined the Government’s plans for its long-awaited overhaul of the electricity market.

In a statement, Huhne told Parliament that the UK faces power blackouts unless it undertakes a major programme of investment of the order of £110 billion by 2020 – down from previous estimates of around £200 billion.

“The current electricity market is simply not up to the job. It cannot deliver investment at the scale and the pace we need. Without reform… we would face a much higher risk of blackouts by the end of this decade.”

Huhne also emphasised that without the reforms, which critics have labelled a ‘green tax’ consumers can ill afford, even greater bill increases would be on the cards. The Government estimates that the reforms are likely to add £160 to the average annual energy bill by 2030.

As expected, the Electricity Market Reform (EMR) White Paper focused on five main areas, which Huhne says will support the development of an affordable and secure electricity supply, as well as low-carbon generation.

First of all, the EMR will introduce a Carbon Floor Price, building on the announcement in the Budget earlier this year.

Secondly, an Emissions Performance Standard, which will stipulate the amount of carbon that new fossil-fuel power stations can emit, will also be introduced, paving the way for carbon capture and storage and a new generation of gas-fired power stations.

The EMR will also bring in new long-term contracts for renewable energy generators and a new contracting framework for capacity – or back-up – electricity.

The only surprise to the announcement was the fifth element of the plans in which the Government will put in place transitional arrangements to ensure that there is no gap in funding while the new system is being set up.

“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 bring new jobs and new expertise to the UK economy,” Huhne concluded.

The Department of Energy and Climate Change (DECC) says the proposals will be considered by Parliament next May, with legislation reaching the statute book by spring 2013 and start supporting projects in 2014.

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Related stories:
Green group calls for UK market reform to drive investment in renewables (12-Jul)
UK Government’s carbon floor price will waste £1 billion, claims report (29-Jun)
UK electricity market reform ‘hiding’ nuclear subsidies, says report (16-May)

13 July 2011