Electricity Market Reform - Energy and Climate Change Contents

Memorandum submitted by Carlton Power

Carlton Power Limited is a UK independent power station developer and has taken forward gas-fired generation projects in the UK and Europe since the company was founded in 1995. To date, we have been involved with the construction of over 1,800MWs of installed electrical capacity and a further 2,380MW of consented plants in the UK. Consequently we have an in-depth knowledge of the energy market here in the UK and a strong sense of the changes that need to be brought into force in order to ensure security of supply and carbon targets without too high a cast being incurred by the consumer.

We have been following the Select Committee's inquiries relating to the EMR and welcome the attention given by the Committee to the lack of liquidity in the market.

Carlton believe that many of the challenges that the UK energy market, most notably new investment in generation, can only be met if there is greater competition. However, since privatisation and the market's consolidation by the Big 6, the barriers to entry for independent players to participate in the market have increased which in turn has worked against the interests of domestic and industrial customers, and held back levels of investment. The market has witnessed higher prices, a lack of transparency and a reduction in competition—both in supply and generation.

In summary, we believe the following:

  1. The "Big 6" do not have the capital or the sources of new investment to fulfil the required investment needed.
  2. Much of the EMR assumes, and indeed requires, more market liquidity for the suggested changes to be effective.
  • Greater liquidity increases competition and creates a more accurate and market-driven wholesale price. The long term wholesale price is a key signal in both encouraging and enabling independent companies to invest in the construction of new generation plant.
  • The UK needs additional capacity, and a secure capacity margin, but this should not be supplied by older, less efficient plants.
  • The capacity market may will interfere with the wholesale market and should be separated and run separately.
  • Carlton Power thinks the re-introduction of a self-supply licence condition (SSLC) would greatly help free up the wholesale market.
  • Wholesale market conditions are heavily stacked towards the vertically integrated companies. The introduction of compulsory auctions would further open up the wholesale market and increase liquidity and competition.

March 2011

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