New Inquiry: Electricity Market Reform

The Coalition’s first Annual Energy Statement announced the Electricity Market Reform (EMR) project, which will issue a consultation document in the Autumn and a White Paper in Spring 2011. The EMR will attempt a fundamental overhaul of electricity market arrangements to help to promote investment in energy infrastructure, especially low-carbon generation. For example, it will consider the implementation of a carbon floor price to reduce risks associated with investment in low-carbon technologies and to advance the UK’s climate change mitigation agenda.

The Coalition agreement mentioned several pillars of the project:

1. A capacity-based market
2. An emissions performance standard (EPS)
3. A carbon price floor
4. Revision of the Renewables Obligation and the Feed-in Tariff system

A number of other policies have been announced which will have a bearing on the operation of the market and creating incentives for investment. DECC have announced a review of the role of OFGEM, the energy market regulator, and the creation of a Green Investment Bank, which is designed to leverage investment in low-carbon energy infrastructure.

The Committee will examine both the overall aims of, and the Government’s implementation plans for, the EMR project. Respondents are free to comment on any issues they consider relevant, although the Committee particularly welcomes evidence addressing the following issues:

• What should the main objective of the Electricity Market Reform project be?
• Do capacity mechanisms offer a realistic way of achieving energy security, low-carbon investment and fair prices?
• What is the most appropriate kind of capacity mechanisms for the UK?
• Should the system of Feed-in Tariffs be focused on particular technologies or maintain a wider technology-based view?
• Will it be feasible to deliver EMR in one go, or will regulations and implementation be spread over time?
• Will market reform increase political risk for investors or create certainty?
• Will the Government’s proposed package of carbon price floor, EPS, FITs and capacity mechanism provide sufficient transformation to achieve goals on climate change, security of supply and affordability?
• What synergies and conflicts will there be between proposed mechanisms and policies already in place?
• Will a carbon floor price be feasible in the context of EMR and at what level should it be set?
• What effects will EMR have on the development of capacity for electricity storage and the development of interconnectors between the UK and other electricity markets?

The deadline for the submission of written evidence is Thursday 6 January 2011.