Dec
2010
Electricity market reform
Originally planned for the autumn, the Government’s long-awaited proposals for the reform of the electricity market have finally arrived today. As the months went by, it emerged that the Government was using today’s announcement as a vehicle to address a broader and broader range of issues. This, combined with the late involvement of the Treasury, has held up work. Has it also meant an incoherent package of measures?
Energy Secretary’s Huhne’s statement underlined the dilemma facing the Government – on the one hand it wants to attract inward investment in low-carbon energy, but has to balance this with keeping the cost of electricity low for consumers. In other words, incentivise developers, but not over-incentivise them…
Let’s take one of the principal elements of today’s package, a proposed carbon price floor. It is not surprising that the Treasury is leading on this. From a public spending perspective, it is win-win – the nuclear sector is incentivised, and the Government can publicly say it has stuck to its pledge of no public subsidy for nuclear new-build. However, generators will have to re-coup the huge cost somehow – higher customer bills would be the easiest way to do so…
A move away from the current Renewables Obligation (RO) to a system of Feed-In Tariffs (FIT) is another of today’s proposals. Whilst this may well result in lower consumer energy bills, in the case of offshore wind it may not incentivise investment. FIT systems favour small developers, yet the sites that have most recently been leased are far from shore, deep, with rough sea conditions. Only large developers will have deep enough pockets to develop these sites, and they are used to the RO…
Interested parties have until mid-March to give their opinions on the proposals; DECC can expect a full inbox…
