Electricity Market Reform - Energy and Climate Change Contents


13  Conclusion

285. The Association of Electricity Producers pointed out that "this reform will be, in effect, the fourth set of trading arrangements (the Electricity Pool, NETA, BETTA) to be applied to the electricity industry since it was privatised and liberalised in 1990/91".[327]

286. It is right that the Government should reform the electricity market again. Decarbonisation, affordability and security of supply must now be considered together at the heart of energy policy and the market needs to be designed to deliver those objectives.

287. However, the Government needs to create a package that will be sustainable in the long term. The shift to a low-carbon, energy secure and affordable system will represent a transformation of the energy sector. Increasing amounts of low-carbon generation with large up-front financing requirements have very different risk/reward profiles from the gas and coal which has been the marginal plant for some time now. These forms of generation will also be much more inflexible and intermittent than we are used to.

288. The goal of £200 billion investment in the energy sector by 2020 is extremely challenging, but is necessary for meeting our decarbonisation targets in an energy-secure and affordable manner. That means the Government must make the UK energy sector an attractive place to invest. We are concerned that as things stand, the UK is going in the opposite direction: investment in clean technology is not increasing quickly enough and the erstwhile preeminent investors in the sector, the Big Six, do not appear to have the capital or the will to invest these sums in the UK.

289. When the Government brings forward its White Paper, the proposals must be simplified so that they deliver an acceptable framework for investment. This will mean giving greater definition to targets and objectives, removing unnecessary elements of the package and setting up appropriate institutional arrangements. We consider the current suggestions for an emissions performance standard to be pointless and that the capacity mechanism does not need to be brought into play yet. The Consultation goes into great detail on the Feed-in Tariff options, but says nothing about the institution that will draw up and manage those long-term contracts.

290. However, the Government is right to introduce long-term contracts to offer reliable returns to low-carbon investments, especially where technologies are still immature. In order to cater for the very different financial and technical requirements of low-carbon generation, the Government must offer long-term contracts specifically designed for a range of technologies, including carbon capture and storage and electricity storage. These contracts should be designed by an independent, expert body that the Government should set up as soon as possible.

291. The EMR package is not as fundamental an overhaul as was promised. If the Government is serious about achieving £110 billion of investment in the electricity sector by 2020 it must reform the current illiquid and opaque electricity trading arrangements.

292. The challenge for the Government is to set out its stall as clearly and as quickly as possible so that investment can begin to flow. The Government must keep to its timetable in delivering the White Paper in Spring and it must set out a clear timeline for implementation.


327   Ev w23 (AEP), section 5 Back


 
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Prepared 16 May 2011