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Huhne plans reform of British electricity market with CfDs

12 Jul 2011 20:16:29 | edem

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The British government is looking to replace the renewable obligation scheme by long-term feed-in contracts-for-difference (CfDs) from March 2017, the UK's energy secretary, Chris Huhne, said on Tuesday.

Unveiling a long-awaited white paper on reform of the UK electricity market, Huhne announced a five-point package to parliament.

He also released the government's renewables roadmap, which aims "to increase our renewable-energy consumption fourfold by 2020", with offshore-wind generation benefitting in particular.

The introduction of CfDs will see the government set a guaranteed price for output. Whenever the wholesale power price falls below that level, the government will pay the generator the shortfall. Whenever the power price is above the guaranteed level, the generator will pay the government the surplus.

The government wants to move from an "administrative price discovery process" to more competitive forms such as auctions or tenders if conditions permit - and will only use them fif they can be made to work for newer technologies.

Under the plan, CfDs will replace renewables obligations from March 2017. Until then, generators can choose CfDs or renewable obligations for payments.

The CfDs system will be complemented by the already announced carbon price floor, which will come into effect in 2013. The carbon floor will be set at £16.00/tonne of CO2 equivalent (tCO2e), rising to £30/tCO2e in 2020.

The government claims its CfDs programme will also be complemented by an emissions performance standard (EPS) that limits the amount of carbon dioxide any new coal-fired power stations can emit, effectively forcing every coal-fired plant to include carbon capture and storage (CCS).

The white paper reveals that the EPS for fossil-fuel plants will be set at an annual limit of CO2 equivalent to 450g/kWh and will make it necessary for typical coal-fired plants to reduce carbon emissions by 40%.

The government is considering two options for its capacity mechanism, which will ensure that enough flexible reserve capacity exists to maintain system integrity.

The first option is a "targeted mechanism" with a proposed model of strategic reserve. The second is a "market-wide mechanism" in the form of a capacity market.

A decision on which of the two options to use will be made at the turn of the year after a consultation.

The white paper says the government will implement effective transitional arrangements to ensure there is no hiatus in investment while the new system is established.

No further details were available at the time of going to press. The government wants to turn the white paper into legislation during 2012. FOR

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