EMR to provide stability for low-carbon investors

16th August 2011


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The government's proposed reforms to the electricity sector have been broadly welcomed as positive steps towards decarbonising the UK's electricity supply.

The five-pronged approach to electricity market reform (EMR), set out in a white paper published in July, focuses on actions to support the investment needed to move to low-carbon electricity and measures to ensure long-term security of supply.

The carbon floor price and long-term feed-in tariff contracts for difference (CfD) are to play a key role in reducing risk and uncertainty within the renewable energy and nuclear sectors, offering investors a more attractive proposition.

“Low-carbon technologies cost more to build than gas power stations, but have much lower running costs. As such they are a very different investment proposition. CfDs offer the prospect of more stable prices,” confirmed Dr Rob Gross, a co-director at the UK Energy Research Centre, welcoming the announcement.

Commitments to create an emissions performance standard limiting carbon dioxide production to 450g CO2/kWh for coal-fired power stations, but only requiring new gas stations to be carbon capture ready, caused more debate. While shadow energy secretary Meg Hillier argued that the measure could result in a new “dash for gas”, the Carbon Capture and Storage Association described the move as “a tremendous step forward”.

Industry bodies the EEF and the CBI both welcomed the paper’s proposed actions, but warned of the potential impacts on energy bills for firms, especially those in energy-intensive industries. “The government still needs to spell out what it thinks the final bill for all of its electricity market reforms will be,” argued CBI director-general John Cridland.

In response, DECC published a provisional impact assessment (IA) of the cost of energy and climate change policy on industry. The figures indicated that such policies were likely to add at least 3% to energy bills for high-energy-consuming industries during 2011, but that EMR policies could result in an 8% drop in retail electricity bills by 2030 compared with bills without EMR policies.

The EEF’s director of policy Steve Radley described the IA as a marked improvement on previous efforts, but he warned that more needed to be done. “There needs to be genuine comparison of what energy-intensive manufacturers in the UK and abroad pay for electricity,” he said.

Others argued that the government needs to put greater emphasis on the benefits that organisations can reap by greater energy efficiency. Stephen Barker, head of energy efficiency and environment care at Siemens, said: “Most organisations could reduce their costs by 20–30% using affordable energy-efficiency measures.”

Delay for Energy Bill

DECC was forced to deny accusations that the government was trying to shelve the Energy Bill after it failed to receive royal assent before the summer recess (see In parliament).

A DECC spokesperson blamed congestion in the House of Commons as the reason for the delay, and energy minister Greg Barker confirmed that he expected the Bill, which outlines details of the Green Deal, would be passed in early autumn.

“I do not expect this will make any change to our plan to bring in the Green Deal in October 2012 and it remains our intention to consult on secondary regulations in the autumn,” he said

EMR to provide stability for low-carbon investors
The government’s proposed reforms to the electricity sector have been broadly welcomed as positive steps towards decarbonising the UK’s electricity supply.

The five-pronged approach to Electricity Market Reform (EMR), set out in a white paper published in July, focuses on actions to support the investment needed to move to low-carbon electricity and measures to ensure long-term security of supply. The carbon floor price and long-term feed-in tariff contracts for difference (CfD) are to play a key role in reducing risk and uncertainty within the renewable energy and nuclear sectors, offering investors a more attractive proposition.

“Low-carbon technologies cost more to build than gas power stations, but have much lower running costs. As such they are a very different investment proposition. CfDs offer the prospect of more stable prices,” confirmed Dr Rob Gross, a co-director at the UK Energy Research Centre, welcoming the announcement.

Commitments to create an emissions performance standard limiting carbon dioxide production to 450g CO2/kWh for coal-fired power stations, but only requiring new gas stations to be carbon capture ready, caused more debate. While shadow energy secretary Meg Hillier argued that the measure could result in a new “dash for gas”, the Carbon Capture and Storage Association described the move as “a tremendous step forward”.

Industry bodies the EEF and the CBI both welcomed the paper’s proposed actions, but warned of the potential impacts on energy bills for firms, especially those in energy-intensive industries. “The government still needs to spell out what it thinks the final bill for all of its electricity market reforms will be,” argued CBI director-general John Cridland.

In response, DECC published a provisional impact assessment (IA) of the cost of energy and climate change policy on industry. The figures indicated that such policies were likely to add at least 3% to energy bills for high-energy-consuming industries during 2011, but that EMR policies could result in an 8% drop in retail electricity bills by 2030 compared with bills without EMR policies.

The EEF’s director of policy Steve Radley described the IA as a marked improvement on previous efforts, but he warned that more needed to be done. “There needs to be genuine comparison of what energy-intensive manufacturers in the UK and abroad pay for electricity,” he said. Others argued that the government needs to put greater emphasis on the benefits that organisations can reap by greater energy efficiency. Stephen Barker, head of energy efficiency and environment care at Siemens, said: “Most organisations could reduce their costs by 20–30% using affordable energy-efficiency measures.”

Delay for Energy Bill
DECC was forced to deny accusations that the government was trying to shelve the Energy Bill after it failed to receive royal assent before the summer recess (see In parliament, left).

A DECC spokesperson blamed congestion in the House of Commons as the reason for the delay, and energy minister Greg Barker confirmed that he expected the Bill, which outlines details of the Green Deal, would be passed in early autumn.

“I do not expect this will make any change to our plan to bring in the Green Deal in October 2012 and it remains our intention to consult on secondary regulations in the autumn,” he said

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