Electricity Market Reform White Paper Will Make Energy Bills Affordable Says Huhne
Chris Huhne, the Energy Secretary, announced the much anticipated Electricity Market Reform White Paper yesterday which outlines the measures the government will take to ensure the lights stay on and that energy bills remain affordable.
The White Paper also highlights how the country will move away from a high carbon economy to a low carbon and more low risk one. However, there are concerns that this move away from coal and gas will cost consumers around £1,000 a year in energy bills.
The main measures included in the White paper are designed to encourage investment, lower consumer energy bills and ensure energy security by improving the energy mix to include gas, nuclear, sources of renewable energy and carbon capture and storage. The reform package includes the following:
• the announcement in Budget 2011 that the Government would put in place a Carbon Price Floor 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 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.
Mr Huhne said “We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts. This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant”.
He added “We have consulted widely and we believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources right here in the UK. A new generation of power sources including renewables, new nuclear, and carbon capture and storage, along with new gas plants to provide flexibility and back-up capacity, will secure our electricity supply as well as bring new jobs and new expertise to the UK economy”.
The Government argues that these measures will help to keep energy bills down because the energy mix will mean the country is protected from volatile fossil fuel prices – it’s rising gas and oil prices which are putting up both domestic and business electricity prices and domestic and business gas prices at the moment. They also say the measures will ensure investors have the certainty they need to “raise capital more cheaply”.