Electricity Market Reform - Energy and Climate Change Contents

Additional memorandum submitted by the Department of Energy and Climate Change


Thank you for your letter of 17 February, with regard to the Government's response to the Committee's report on the Emission Performance Standard (EPS). You raised two additional questions, which I have responded to below.

1.  As you note, the analysis for the Electricity Market Reform (EMR) consultation looked at the potential for an EPS to be used to drive decarbonisation. Government concluded that, in the absence of other EMR. policies, the EPS trajectory modelled in the Redpoint analysis would be the trajectory needed to hit an indicative target of 100g/kWh across the sector by 2030. It also concluded this would present significant security of supply risks, and would not be the most cost effective option.

     As you will also have noted, the Committee on Climate Change (CCC) advice on the Fourth Carbon Budget recommends an average emission intensity across the sector of 50g/kWh by 2030. We are currently considering these recommendations in preparation of setting the fourth Carbon Budget in legislation by June this year and will respond to the CCC advice later in the year.

     Further, as you have previously agreed, it is important that we look at the EPS in the context of the other proposed market measures, such as carbon price support and Feed in Tariffs. We have already included analysis of the EPS as part of the package, and are now undertaking further work on a range of options in light of comments received. We will be looking at the results in the context of the CCC's recommendations.

2.  We considered the interactions between the proposed EMR mechanisms in the analytical work leading up to the consultation launched in December,[3] which was detailed in the accompanying Impact Assessment. The potential for gaming was also considered.[4] In the next phase of the work, leading up to the White Paper, we will be commissioning external advice to look specifically at the potential for players to manipulate the market to their own advantage and how the various instruments can be designed to minimise the potential for this. This work will look at the system of incentives as a whole to fully understand the interactions between the mechanisms.

I hope this provides you with sufficient information, and I look forward to giving evidence to the Committee on EMR on 15 March.

3   Section 6, Part C (page 84) Back

4   Section 7.4 (page 98) Back

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Prepared 16 May 2011