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Electricity Market Reform

Will the electricity market reform (EMR) cost businesses?

The International Energy Agency (IEA) has advised that there is the risk that the electricity market reforms outlined in last week’s draft Energy Bill could increase costs for businesses.

The EMR is intended to try and attract the investment needed to build new low-carbon capacity, and establish a balanced portfolio of renewable technologies.

What’s included in the bill?

  1. Contracts for Difference – intended to guarantee investors the price for the power they will generate from new nuclear or renewables.;
  2. Investment Instruments – to help get investment before Contracts for Different come into force;
  3. Capacity Market – to help make sure we have enough electricity in the future;
  4. Conflicts of Interest and Contingency Arrangements;
  5. Renewables Transitional – transition arrangements for investments under the renewables obligation scheme,
  6. Emissions Performance Standard – to prevent construction of new coal plants which emit more than 450g/kWh of carbon.

What are the issues?

The IEA says the UK will need to invest £110bn in new networks by 2020 to decarbonise the economy and meet electricity demand, most of which will have to come from businesses.

They have also expressed concern that many aspects of the bill are untested and could lead to price volatility and companies competing for government concessions rather than working to keep costs down. For instance, concerns have been raised over the contracts for difference as the proposals are miles away from original expectations and it is unclear who would now act as a counterparty to the guarantees.

It is also surprising that the bill doesn’t deal with cutting energy usage at all, and focuses more on gas and nuclear as opposed to renewable energy.

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