Electricity reform aims to keep the lights on in the cheapest, cleanest way ...

Electricity reform aims to keep the lights on in the cheapest, cleanest way
Transformation of the electricity market took a step forward in July with publication of the coalition government’s Electricity Market Reform White Paper, which set out measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables and carbon capture and storage. Published alongside, the Renewables Roadmap outlines a plan of action to accelerate renewable energy deployment to meet the target of 15% of all energy by 2020 while also driving down costs.
With a quarter of the UK’s generating capacity shutting down over the next ten years as old coal and nuclear power stations close, more than £110bn in investment is needed to build the equivalent of 20 large power stations and upgrade the grid, says the government. In the longer term, by 2050, electricity demand is set to double, as we shift more transport and heating onto the electricity grid. Business as usual is not therefore an option.
Key elements of the reform package include:
the announcement in Budget 2011 that the government would put in place a Carbon Price Floor to reduce investor uncertainty;
the introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation;
an Emissions Performance Standard (EPS) set at 450 g CO2/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also ensure that necessary investment in gas can take place; and
consideration of the form of a Capacity Mechanism, including demand response as well as generation, needed to ensure future security of electricity supply.
Secretary of State for Energy and Climate Change Chris Huhne said: ‘We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts.’
Publication of the White Paper marks the first stage of the reform process. The government intends to legislate for the key elements of this package in the second session of this Parliament, which starts in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so that the first low-carbon projects can be supported under its provisions around 2014.
The Government and Devolved Administrations also published the Renewable Energy Roadmap, which sets out a programme of action to tackle the barriers to renewables deployment, enabling the level of renewable energy consumed in the UK to grow in line with government ambitions for 2020 and beyond.