Secretary of State for Energy and Climate, Amber Rudd, set out the long awaited “energy reset” in a speech and associated publications by Department of Energy & Climate Change (DECC) on 18 November 2015, in what will be remembered as the Government’s big push towards cheaper offshore wind, new nuclear, new gas and the phasing out of coal.

There are numerous key points from the speech but of note are the implications for emerging technologies and the Government’s focus on ensuring that security of supply is “the number one priority”. Whilst noting that no power generation can now be built without subsidies the Secretary of State stated the Government’s commitment to moving to a competitive energy market (as far as possible) using the tools developed through Electricity Market Reform by 2025.

The speech set out the broad objectives for the Government in each area. Of note:

  • offshore wind is here to stay (at least for three more auctions and subject to cost reduction);
  • the era of unabated coal is coming to an end, with some speculating on whether we will see another dash for gas;
  • it is time to revitalise, reinvest and move to a smarter energy market for Great Britain; and 
  • the proposals are wide ranging but light on detail, eg on the extent of cost reductions expected in the offshore wind sector. These details will need to be fleshed out by DECC over the coming months.

New infrastructure

Together with a competitive energy market, the need to build new energy infrastructure “fit for the 21st century” was an integral part of the speech. This new infrastructure would be found in new interconnectors, gas-fired power stations, nuclear and a focus on low cost offshore wind. Ensuring these can be built will be no easy task, but one tool will be a new and improved Capacity Market upon which DECC are now consulting.

Another key tool for the Government is the Contract for Difference (CfD) and how this will encourage further investment in our “world leading offshore wind industry”, whilst it was stressed that there will be “no blank cheques” and that any support would be conditional upon the cost reductions already seen being accelerated. The message to offshore wind is clear – the costs must come down. Still, industry will be relieved to know that at least 3 further CfD allocation rounds are planned, with the first of these likely before the end of 2016.

The importance of a more stable and robust price on carbon was highlighted, with positive comments made about the EU Emissions Trading Scheme.   There were also comments about intermittent generators being responsible for the pressures they add to the system when the wind does not blow or the sun does not shine and that “only when different technologies face their full costs can we achieve a more competitive market”. The implications of this are not clear: it appears to be paving the way for a policy change beyond the changes to imbalance pricing resulting from the Cash Out Reform. We understand that the Government has engaged consultants to establish the “true cost” of renewables.

Smarter system

The Government also announced a further push towards a smarter energy system including storage, interconnection and demand side response and how regulations needed to change in order to accommodate these technologies and the models that they operate within. The roll out of smart meters and the part they will play in building an approach to Time of Use tariffs. The Secretary of State also stated that the Government has already agreed with Ofgem that by early 2017 they will remove the barriers to suppliers choosing half-hourly settlement for household consumers.

Promoting competition and efficiency

Other areas that the speech touched upon were the role that the system operator plays, and the role of the CMA in creating competitive energy markets. National Grid could be allowed greater independence in order to allow the company to make the changes needed to make the system as productive, secure and cost-effective as possible. The competitive environment that the CMA is fostering should continue and the retail market review should not shy away from tackling the tough issues surrounding wholesale gas and business customers. It was noted, however, that the supply market has become more competitive with 26 independent suppliers with a market share over 13%, up from 1% in 2010.

Research and Development

Recognising that recent advances in technology have been primarily realised in the renewables sector the Secretary of State highlighted the need for research and development to look towards other types of technology that could help meet the energy needs of the UK. These include refining technologies such as Nuclear but also building upon the foundations that we have in Carbon Capture and Storage, energy storage and small modular reactors. Whilst there was no commitment to further funding for research and development there was the recognition that DECC’s funding is crucial to some of the emerging technologies.

Decarbonising

As the Climate Change negotiations in Paris open in a few days’ time and the carbon targets of countries come under scrutiny across the globe it is perhaps no surprise that a headline announcement was the announcement of a consultation in the spring on when to close all unabated coal-fired power stations. The proposals will be to close coal by 2025. This headline drawing statement was caveated with the statement that the Government will only proceed with this plan if a shift to new gas can be achieved within the time frame. Time will tell whether this is a goal that can be viably achieved although this does not appear to be too radical a shift to current expectations based on targets.

For further information on any of the topics and the way that CMS can assist please contact any of the authors.

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