HC 742 Electricity Market Reform

Electricity Market Reform

Response by the Nuclear Industry Association

The Nuclear Industry Association (NIA) welcomes this opportunity to provide written evidence to the Committee on this issue.

The NIA is the trade association and information and representative body for the civil nuclear industry in the UK. It represents over 250 companies operating in all aspects of the nuclear fuel cycle, including the current and prospective operators of the nuclear power stations, the international designers and vendors of nuclear power stations, and those engaged in decommissioning, waste management and nuclear liabilities management. Members also include nuclear equipment suppliers, engineering and construction firms, nuclear research organisations, and legal, financial and consultancy companies.

Some of our members, particularly those participating in the UK nuclear new build programme, will be making their own detailed responses to the Committee. The purpose of this NIA response is to make some higher level points on the key issues identified by the Committee.

What should the main objective of the Electricity Market Reform project be?

The electricity market reform should be structured to produce market conditions which incentivise and reward those generation characteristics it is government policy to deliver. To reflect the long-term nature of the investments it should provide policy stability over an extensive period. The key outcomes should be the incentivisation of new plant, including low carbon, reliable and secure generation, at the necessary capacity to help maintain the UK as a modern cutting edge economy.

It is important that the reform should continue a market-based approach, where strong competition will lead to the least cost to consumers.

Do capacity mechanisms offer a realistic way of achieving energy security, low-carbon investment and fair prices?

Capacity mechanisms are one of the possible ways of creating a financial incentive for utilities to develop the large scale generating capability which the government wants the private sector to provide for the UK.

The proposals put forward by government are one possible way of achieving this, and NIA will comment more on those issues in our response to the DECC consultation on EMR.

What is the most appropriate kind of capacity mechanisms for the UK?

This is more an issue for the relevant utilities and Government than for the NIA.

Should the system of Feed-in Tariffs be focused on particular technologies or maintain a wider technology-based view?

Again this is more an issue for the utilities and Government than for the NIA.

Will it be feasible to deliver EMR in one go, or will regulations and implementation be spread over time?

This will depend on the model of measures selected, and again is more an issue for the utilities and government. Nonetheless it is important that the measures chosen are consistent and compatible, and implemented in a way which does not negatively impact on certainty, market confidence or clarity. It is particularly important, as mentioned above, that the package should provide policy stability over an extensive period.

Will market reform increase political risk for investors or create certainty?

A properly conducted and effective EMR is an essential pillar in the government’s work to create a market framework where investors can have certainty that their investments will be profitable in the long-term. It is also critical to meeting the government’s goals on carbon emissions and security of supply.

Will the Government's proposed package of carbon price floor, EPS, FITs and capacity mechanism provide sufficient transformation to achieve goals on climate change, security of supply and affordability?

These are all valid measures and will play an important role in delivering these key aims. Whether they alone are enough is a matter for government to discuss directly with relevant utilities.

What synergies and conflicts will there be between proposed mechanisms and policies already in place?

Whichever mechanisms are ultimately selected, they must be structured to avoid conflicts with new or existing mechanisms. It will be important that the carbon floor price works properly with EU ETS. The EMR must result in a market where government aims are properly rewarded in the market framework and there is certainty and clarity for investors.

Will a carbon floor price be feasible in the context of EMR and at what level should it be set?

There is no reason in our view why a carbon floor price should not be feasible. The level at which it is set is a matter for government, utilities and economic analysts to decide as appropriate.

What effects will EMR have on the development of capacity for electricity storage and the development of interconnectors between the UK and other electricity markets?

This is not an issue for the NIA.

Nuclear Industry Association

6 January 2011