Energy Secretary Chris Huhne unveiled the Government’s White Paper on Electricity Market Reform (EMR) today, outlining the first steps in the largest shake-up of the market since privatisation and setting the framework for low carbon energy at the lowest cost to consumers.
Published in most part as a response to carbon emission reduction targets set out in the Climate Change Act and the European Union (EU), the EMR White Paper
identifies key measures to reduce impacts on consumer bills, attract investment
and create a varied combination of electricity
sources including new nuclear, gas, renewable
energies and carbon capture and storage (CCS).
Describing what is required to transform our electricity system as a "Herculian task", Huhne confirmed the scale of investment needed to "keep the lights on" would be £110 billion – more than twice that of the last decade.
"This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant," he said.
Measures set out in today’s paper, titled 'Planning Our Electric Future: a White Paper For Secure, Affordable and Low Carbon Electricity,’ aim to respond to challenges facing the electricity market – for example, the closing of old coal and nuclear power stations over the next 10 years, which currently make up a quarter of the UK’s generating capacity.
This, in combination with estimates that the country’s electricity demand will double by 2050, warrants a response to keep the market stable and generate the £110 billion in investments needed to build 20 new power stations and update the grid.
"The fact is that the current electricity market is not able to meet that challenge," said Huhne "We have consulted widely and we believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources right here in the UK."
Measures of the reform
In line with the proposals Government set out in a consultation late last year, four key measures underpin the package. The first is a carbon price floor, introduced in the 2011 Budget, the aim of which is to make investors feel more secure and increase incentive for investment in low carbon energy. This is one Government aim to help decarbonise electricity generation.
Second is an Emissions Performance Standard (EPS) to ensure no new coal-powered plants can be built without CCS. Today’s White Paper revealed the EPS would be set at an annual limit of 450g CO2 per kilowatt hour (kWh).
Thirdly, a new system of long-term contracts in the form of Feed-in Tariffs with Contracts for Difference (FiT CfD) will be introduced. This will give those who invest in low carbon energy stable and predictable revenue streams, according to the report. The new contracts will be able to be delivered by a range of possible organisations, including those in the private sector, the report said.
The fourth measure is a capacity mechanism to incentivise investment in back-up power plants.
In a bid to avoid a hiatus in investment, Huhne confirmed that the package of measures would also include "transitional arrangements" while the new system was being set up.
Far from driving up energy bills, as some critics have suggested, the Government said its measures would ensure electricity household bills would be less than if the market was left alone. According to its own estimates domestic electricity bills will be around £200 higher in 2030 compared with today’s £500 average annual household bill if the market is left unchanged. The reforms will limit this increase to £160, the Department of Energy and Climate Change (DECC) said.
The ERM White Paper was accompanied by a Renewables Roadmap, which outlined the Government’s plan of action to meet the UK’s renewables
target of 15 per cent of all energy by 2020. Acknowledging that this will equal a four-fold increase in the level of green energy consumption by the end of the decade, the Government today put its full weight behind offshore wind, which the UK is already a world leader in.
As well as announcing £30 million to support innovation in offshore wind component production, DECC said it had asked a new industry-led task force to reduce the costs of offshore wind from around £150 to £100 per megawatt hours by 2020. This, it said, should make it possible to deliver up to 18 gigawatt (GW) of offshore wind capacity within the next decade – up from the 13 GW called for from the Committee on Climate Change.
"Growth on that kind of scale will be challenging, but will be necessary if we are to make the UK more energy secure, help protect consumers from fossil fuel price fluctuations, drive investment in new jobs and businesses, and keep us on track to meet our carbon reduction objectives for the coming decades," said Huhne.
Despite the Government’s strong backing for offshore wind, Huhne denied in a Commons debate today that he was attempting to "pick winners" in the low carbon energy mix. He also faced down accusations that the carbon floor price amounted to a subsidy for the building of new nuclear power plants.
The Government intends to introduce new legislation for key measures set out in the White Paper in May 2012 in time for legislation to reach the statute book by the end of the next Parliamentary session in spring 2013.
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