Energy Bill clears the last hurdle – electricity market reform on the way

The Energy Bill – which makes provision for reform of the electricity market to encourage low carbon electricity generation – received Royal Assent on 18 December; the same date the government published its Electricity Market Reform Delivery Plan.

 

The two initiatives should together unlock up to £110bn of private sector investment in the electricity sector, according to the Department of Energy and Climate Change (DECC). They should provide investors and industry with the confidence they need to invest in the energy sector and also places a legal obligation on British governments to ensure the UK’s energy generating capacity is maintained, while at the same time reducing emissions. This package of measures will support up to a quarter of a million jobs, 200,000 of which are in the renewable energy sector, adds DECC.

 

Over £31bn of investment announced in renewable electricity generation projects have been announced since 2010, says DECC, and this package is expected to attract around £40bn of investment in renewable electricity by 2020. This will provide enough power for 10mn homes while at the same time reducing carbon emissions by the equivalent of 25% of annual households.

 

A number of accompanying announcements were also made:

·      Accompanying the Delivery Plan is a revised version of the CfD, with improvements made to the contract terms to further support the ability of developers to bring forward investment at lower cost to consumers.

·      The government sent out draft investment contracts to the sixteen renewables projects that have progressed to the next stage of the ‘FID Enabling for Renewables process’. 

·      A Capacity Market is being introduced which works by providing regular payments to capacity providers so that they are available to and produce energy when capacity is tight, or face penalties. The government confirmed the level of system security that will be required under the mechanism.

·      Ofgem approved National Grid’s request to develop new services to ensure there is sufficient capacity in the period before the Capacity Market is operational. This will see existing and mothballed facilities being available to generate power to meet additional demand as necessary.