Electricity market reform

Key facts

  • Around a fifth of our existing electricity generation is closing over the next decade; and a significant proportion of new generation is likely to be more intermittent and less flexible.
  • Up to £110 billion investment in electricity generation and transmission is likely to be required by 2020, more than double the current rate of investment.
  • Current market arrangements will not deliver investment at the scale and the pace that we need.
  • By reforming the market, we can ensure future security of supply and build a cleaner, more diverse, more sustainable electricity mix.
  • This new market reform will minimise the impact on bills by insulating UK from volatile fossil fuel prices and providing investors with certainty they needed to raise capital more cheaply.

Electricity Market Reform (EMR) took another step forward on 22 May with the publication of the draft Energy Bill.

The draft Bill includes measures necessary to reform the electricity market to deliver secure, clean and affordable electricity:

  • At the heart of the EMR measures are Feed-in-Tariffs with Contracts for Difference (CfDs) - long-term instruments that provide stable and predictable incentives for companies to invest in low-carbon generation;
  • Final Investment Decisions (FIDs) will enable some of this investment to come forward in advance of the CfD regime coming into force;
  • This will be complemented by a Capacity Market that will, if required, provide security of electricity supply by ensuring sufficient reliable capacity is available;
  • Measures relating to Conflicts of Interest and Contingency Arrangements will ensure that the institution which will deliver these schemes is appropriate;
  • Renewables Transitional measures will ensure that existing investments under the Renewables Obligation remain stable;
  • Finally, an Emissions Performance Standard (EPS) will curb the most polluting fossil fuel power stations.

Taken as a whole, EMR will enable large-scale investment in low-carbon generation capacity in the UK and deliver security of supply, in a cost-effective way.

In addition to EMR, the Energy Bill will also improve regulatory certainty by ensuring that Government and Ofgem are aligned at a strategic level through a Strategy and Policy Statement (SPS), as recommended in the Ofgem Review of July 2011.

The Bill also ensures that the Office for Nuclear Regulation will be fully able to meet the future challenges of regulating the nuclear industry, as the first new power plants since the 1980s are built.

Finally, the Bill contains provisions that will enable the sale of the Government Pipeline and Storage System (GPSS), a Ministry of Defence asset.

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