UK: DECC Publishes Draft Electricity Market Reform Delivery Plan

Investors will receive further certainty today of how the government will support investment in new energy infrastructure through the Energy Bill, in order to keep the lights on and bills and emissions down.

The draft Electricity Market Reform Delivery Plan, published today for consultation, provides detail on the support mechanism (long-term Contracts for Difference) and draft strike prices for renewables investors, which together will help incentivise up to £110 billion of investment in new electricity infrastructure by 2020.

Secretary of State, Edward Davey, said of the draft Delivery Plan:

“No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge.

“The Delivery Plan will provide investors with further certainty of government’s intent, so that they can get on and make crucial investment decisions that are supporting green jobs and growth.

“The strike prices we have set will make the UK market one of the most attractive for developers and investors in renewable energy.

“It is necessary to support technologies in the early stages of their development, but we are looking all the time at how we reduce the costs for consumers.

“The new support mechanism we are introducing for renewables will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030.

“This will put the UK one step ahead in the global race to develop clean technologies, and will support up to 250,000 jobs across the energy sector.

“As well as being good for green jobs and growth, what we are doing will protect our environment. The new strike prices will mean that renewables can contribute more than 30% of our power mix by 2020, putting us on track to seeing significant decarbonisation of the power sector by 2030 and meeting our wider climate targets.”

The draft EMR Delivery Plan provides further detail on:

• The Contracts for Difference support mechanism – this will support investors in low carbon energy, by removing commercial risks, such as wholesale price risk. CfDs will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030 because they will deliver cost of capital reductions that cannot be achieved through existing schemes.
• The methodology behind the level of draft strike prices for renewable electricity including onshore and offshore wind, tidal, wave, biomass conversion and large solar projects from 2014-19 – these will kick-start investment in renewables, leading to renewable energy contributing 30% to the UK’s power mix in 2020. This support comes from within the £7.6 billion Levy Control Framework to 2020/21, as previously announced.
• The methodology government will use in running a Capacity Market – government is proposing the use of a ‘reliability standard’ to guide how much capacity is auctioned in the Capacity Market in 2014, for delivery in 2018-19.
• The latest assessment of the price and bill impacts of Electricity Market Reform – EMR is expected to reduce annual household electricity bills by an average of £63 or 9% over the period 2016 to 2030 (in real 2020 prices), compared to meeting the same policy goals using existing policy instruments.
• Scenarios for technology deployment and decarbonisation from now to 2030 – this sets out three scenarios for decarbonisation of the power sector out to 2030, showing the level of deployment of different technologies required to decarbonise the power sector to 50g/kWh, 100g/kWh and 200g/kWh. DECC has also modelled scenarios showing higher deployment rates for Carbon Capture and Storage (CCS), nuclear generation and offshore wind out to 2030, these assume that the power sector is decarbonised to 100g/kWh by 2030.

The scenarios outlined in the Delivery Plan are not targets. The exact generation mix will be influenced by how individual technologies develop in the coming decade. The government is committed to decarbonising the power sector but doing so in a way that maximises value-for-money for consumers by moving to a competitive price discovery process for all low-carbon technologies as soon as is practicable.

The government is committed to meeting the UK’s legally binding Carbon Budgets and to reducing greenhouse gas emissions by 80% on 1990 levels by 2050.

A power to set a decarbonisation target range for 2030 has been added to the Energy Bill. The target will be set 2016 once the government has received advice from the Committee on Climate Change on the level of the 5th Carbon Budget.

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Press release, July 17, 2013; Image: National Grid