Next month, the Department for Energy and Climate Change (DECC) will issue a consultation paper on the planned wide-ranging Electricity Market Reform (EMR). Previously the date of release had been left as an ambiguous 'during the autumn' but DECC Minister Charles Hendry recently confirmed during parliamentary questions that the consultation process will formally begin in December.
DECC has recently updated its Business Plan to set out its anticipated timetable for EMR. This provides that the publication of the White Paper for EMR will be released in May 2011 to coincide with the outcome of the Ofgem review consultation, which began around the time of the Comprehensive Spending Review.
So what will the reforms entail? Certainly it seems that the overarching principle could be summarised as reforming the market in order to draw high levels of new investment into low-carbon energy infrastructure. Previously DECC had stated that that market reform was needed to pull 'four or five times' current investment levels into new generation.
However, the DECC Business Plan hints at four main proposals to be included:
- an assessment of the role that a basic carbon price can play in ensuring energy prices reflect their carbon content and in encouraging investment in low carbon generation;
- an analysis of how revenue uncertainty for low carbon generation can be reduced – for example by introducing a full system of Feed in Tariffs;
- the introduction of a new capacity system which will incentivise or positively require a degree of capacity in the energy system ensuring better security of supply; and
- discussion of an Emissions Performance Standard for fossil fuel generation, which would also prevent the development of new coal-fired projects unless they are equipped with CCS.
Another possible element of the consultation that came to light during recent months is an assessment of the role a revised Renewables Obligation could play in the delivery of policy aims. Also, the existing 'Connect and Manage' regime for grid connections has been mentioned in connection with the reforms suggesting further emphasis on the removal of grid connection barriers for low carbon generation. As well as this, consideration of alternative resources such as demand-side management, storage, interconnection and distributed generation could also feature.
We will issue a review of the consultation following its publication next month.
For more information about Electricity Market Reform, please contact James Saunders or Lesley Gray.