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UK publishes long-awaited electricity market reform bill

29 Nov 2012 15:15:37 | edem

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The UK government confirmed a suite of measures on Thursday to promote investment in low-carbon generation between now and 2020 as part of its long-awaited electricity market reform package to be debated by the parliament in coming days.

The changes, which have been largely pre-announced, include a feed-in tariff (FIT) with contracts for difference (CfD) subsidy scheme for renewable and nuclear generators and the ability for the government to assume powers to promote competition and liquidity in the wholesale electricity markets.

Other measures include a capacity market to ensure that it is profitable for thermal generation to switch on as a backup in times of high peak demand and an emissions performance standard for fossil-fuel generators.

As flagged on Friday, the government will assume powers to set a carbon intensity reduction range for the electricity sector to 2030 (see EDEM 23 November 2012). However, a decision to exercise the power will not be taken until 2016, after the next UK general election in 2015, when the fifth Carbon Budget for the 2028-2033 period will have been published.

Speaking in the House of Commons on Thursday, energy secretary Ed Davey said discussions on the decarbonisation target were not final, and would most likely continue while the bill is being debated by parliament.

The government will spend £7.6bn (€9.4bn) on low-carbon subsidies between 2015 to 2020, in addition to the estimated £11.8bn it has already earmarked for 2011-2015.

Network operator National Grid will deliver the reforms, administering CfDs and the capacity market. The company has already issued a call for evidence to begin the work of setting strike prices underpinning the CfDs.

While the industry has been calling for certainty for months and broadly welcomes the reforms, investors' fears on policy uncertainty will not be assuaged until the government releases strike prices for new renewable and nuclear projects next spring.

Meanwhile, investment decisions on the first of the new nuclear projects and the third round of offshore wind projects hang in the balance because developers need to weigh the strike price against the existing Renewable Obligation Certificate payments. Developers can choose between the two subsidies from 2014 to 2017.

The government has already released legislation for a carbon floor price of £16 (€19.74)/tonne CO2 equivalent which will come into effect from April 2013 (see EDEM 29 November 2011).

Davey has previously said the government is aiming for the bill to have two readings before the end of this year, to have it passed early in 2013 and to have achieved royal assent later that year (see EDEM 6 November 2012). KB

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