The DECC intends that the key elements of the reform will overcome barriers and work to put into place strong incentives for a mix of low-carbon electricity generation, to put downward pressure on projected price rises, and to bring clarity and confidence to investors and the market.
Specifically, the White Paper outlines plans for:
- “a Carbon Price Floor (announced in Budget 2011) to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now;
- “the introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A contract for difference approach has been chosen over a less cost-effective premium feed-in tariff;
- “an Emissions Performance Standard (EPS) set at 450g CO2/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also to ensure necessary short-term investment in gas can take place; and
- “a Capacity Mechanism, including demand response as well as generation, which is needed to ensure future security of electricity supply. We are seeking further views on the type of mechanism required and will report on this around the turn of the year.”
The DECC argues that together these proposals will put in place the framework for working to deliver the capacity and demand side response to guarantee future security of supply, and to encourage low-carbon investment, generating jobs and growth.
On the question of costs, the policy documents say that the reforms will deliver the Government’s aims at the least possible cost to consumers. They say that bills for households and businesses are likely to be lower and less volatile over the period to 2030 than if we had left the market as it is.
Alongside these reforms, the DECC also announced that it will set aside up to £30million over the next four years to support technology development programmes to improve the efficiency and reduce the costs of offshore wind.
The intention is for the reforms move through Parliament during 2012, and to have passed into the Statute Books for Spring 2013. Further, a technical update will be published at the end of this year, outlining more details on the design of the Capacity Mechanism; and more details on the institutional arrangements needed to deliver these policies.
Impact on the public sector:
The reforms proposed in this White Paper, while dealing at the macro level of demand and supply issues in the electricity market, will have important implications for the public sector and local government.
Firstly, the reforms are looking to remove barriers and incentivise investment in renewables, nuclear and coal power with carbon capture and storage, which should in practice mean that the private sector will be looking at where to site new developments. The public sector will be deeply involved in this process, and indeed the White Paper highlights the intention for local councils and communities to play a role in decision making over the type and location of new energy development.
From investment in new wind farms through to decisions on new nuclear power plants, public sector organisations are facing a range of important choices, for which the stakes involved are also high.
Nuclear power is a good example of this. With the Government having identified eight UK sites where new nuclear power stations can be built, and with these reforms looking to further cement certainty for investors; councils will have important decisions and options around how new nuclear plants impact local economic and regeneration.
Similar opportunities and decisions will apply throughout new energy developments, with local government having the opportunity to attract investment and jobs.
Further, while councils will have less involvement in planning decisions for nuclear power developments, they will play a strategic role in planning for other energy developments.
As well as the public sector having choices over the type and location of new energy supplies, they also have to consider the implications of the reforms to the electricity market on local communities. For council’s with social housing, rising electricity bills over the coming decade will put a strain on many people and are likely to lead to increased fuel poverty.
Chris Huhne speech on new White Paper:
Electricity Market Reform (EMR) White Paper 2011
“Planning our electric future: a White Paper for secure, affordable and low-carbon electricity”.