The GB energy market contains a large number of policies designed to further climate goals while protecting consumer and maintaining security of supply. These three, potentially conflicting goals, are often referred to as the “electricity trilemma”, and they have underpinned GB energy policy for the past decade.
The Government set out its intention to reform the electricity market in the Electricity Market Reform (“EMR”) White Paper in July 2011 and the EMR Technical Update in December 2011. The EMR provisions passed into law in the Energy Act 2013, which put in place measures to attract the £110 billion of investment the Government believed would be needed to replace retiring generating capacity and upgrade the electricity grid by 2020, and to cope with a rising demand for electricity. The key elements of EMR included:
- A mechanism to support investment in low-carbon generation: the Feed-in-Tariffs (“FiT”) with Contracts for Difference (“CfD”);
- A mechanism to support security of supply, if needed, in the form of a Capacity Market; and
- The institutional arrangements to support these reforms.
These mechanisms would be supported by:
- The Carbon Price Floor – a tax to underpin the carbon price in the EU Emissions Trading System;
- An Emissions Performance Standard – a regulatory measure to limit emissions from new fossil fuel power stations at 450g CO2 /kWh to ensure that no new coal-fired power stations are built without CCS, and to facilitate necessary short-term investment in gas;
- Electricity Demand Reduction Pilot – a study to explore the viability of including energy efficiency measures in the Capacity Market; and
- Measures to support market liquidity and access to market for independent generators.
(The Electricity Demand Reduction Pilot found that energy efficiency measures would struggle to compete in the Capacity Market and so far no such schemes have been progressed.)
The objectives of EMR were to ensure a secure electricity supply by providing a diverse range of energy sources, including renewables, nuclear, carbon capture and storage equipped plant, unabated gas and demand-side approaches; and ensuring enough reliable capacity was available to minimise the risk of supply shortages. EMR was also intended to attract sufficient investment in sustainable low-carbon technologies to meet EU 2020 renewables targets and the UK’s longer term target at the time to reduce carbon emissions by at least 80% of 1990 levels by 2050.
Finally, EMR was intended to maximise benefits and minimise the costs to the economy as a whole and to taxpayers and consumers, maintaining affordable electricity bills while delivering the investment needed. EMR was designed to minimise costs compared to previous policies by using market dynamics and competition. The need for Government intervention was to decline over time.
EMR had four distinct phases:
In addition to the roles played by the Government and Ofgem, the roles of other parties were expanded, and entirely new institutions created for the implementation of EMR. In particular the role of National Grid was expanded to act as the delivery body for both the Contracts for Difference and Capacity Market schemes. The Low Carbon Contracts Company was established to act as the CfD counterparty and administer the CfD scheme, and the Electricity Settlements Company was created to administer the Capacity Market settlements process.
EMR marked a major step in the Government’s approach to energy policy, but other environmental incentives pre-dated its creation, and new schemes have since been established. Although EMR related specifically to the electricity market, there are also schemes aimed at the gas market, and at energy consumers more broadly.
This seminar will look in detail at all of the environmental and social policies relevant to the GB energy markets that are in place today, including schemes which are closed to new members but continue to support existing projects.