The Department of Energy and Climate Change (DECC) have published their long-trumpeted white paper on the reform of the UK electricity market. Having given the industry clear pointers on Government-favoured options in the consultation launched at the end of last year, there are no surprises. The four key measures in the white paper are:
- A new system of Feed-in Tariffs with Contracts for Difference (FiT CfD) as a long-term subsidy contract for low-carbon generation, to provide a clear, stable and predictable revenue stream for investors.
- The introduction of a Carbon Price Floor (CPF) to provide a stronger incentive to invest in low-carbon technology.
- An Emissions Performance Standard (EPS) set as an annual limit of 450g CO2/kWh at baseload, reinforcing the requirement that no new coal-fired power stations are built without Carbon Capture and Storage.
- The introduction of a Capacity Mechanism, either on the basis of a Strategic Reserve (an off-market, centrally-managed pot) or a market-wide mechanism.
The White Paper recognises that security of supply is likely to be the UK’s biggest challenge in the second half of this decade, as older fossil-fuel and nuclear generation providing much of our baseload is decommissioned. So, will the measures proposed in the White Paper provide security? The Government acknowledges that the new incentives, encouraging investment in a diverse range of low-carbon generation, will not be enough. It remains debatable whether the introduction of a new Capacity Mechanism, combined with measures to reduce demand, will suffice. There remains a lot of industry scepticism, and the Government’s case is not helped by the timescales for reform, where legislation is not likely to be passed until Spring 2013 at the earliest.