Electricity Market Reform White Paper – Reactions

Secretary of State for Energy and Climate Change Chris Huhne unveiled a new white paper, titled Electricity Market Reform (EMR), this week. The paper outlined the Westminster Parliaments plans for the much delayed and even more necessary reforms and infrastructure investments in the UK Energy Grid. It outlined the technologies earmarked as being cost-effective and high in potential both now and post 2020. These technologies are onshore wind, offshore wind, marine energy, biomass electricity, biomass heat and ground and air source heat pumps. As well as this there was also a big role given to nuclear power with some declaring some of the reforms as nothing more than hidden subsidies for the industry. The white paper is also notable for its shift in rhetoric. Previously the Department of Energy and Climate Change had spoken of achieving Government targets for carbon emission reduction but with energy bills steadily rising and public disquiet on the issue increasing the talk had shifted to “keeping the lights on”.

Huhne at the paper’s unveiling said: “The idea that somehow we’ve been massively investing in renewables is absolute nonsense. We are catching up from a very low base. We’ve had 25 years of dithering on energy investment. We’ve got to stop dithering, because decision time is coming. You can have investment or you can have blackouts.”

The EMR paper predicted at least a four-fold increase in renewable energy consumption by 2020. Huhne spoke of why this was vital: “Growth on that kind of scale will be challenging, but will be necessary if we are to make the UK more energy secure, help protect consumers from fossil fuel price fluctuations, drive investment in new jobs and businesses, and keep us on track to meet our carbon reduction objectives for the coming decades.

“It will require industry to carry on making the case for renewables and Government and the Developed Administrations to break through the barriers that are stopping new schemes being built.”

Energy Minister Charles Hendry told journalists that the government expected the technologies outlined in the EMR paper to achieve 90% of their target with other technologies, such as solar, having a “marginal role”.

Reaction to the paper was as could be expected, from the large number of different interests involved, mixed.  Scottish Renewables chief executive Niall Stuart issued the following statement: “The statement confirms that renewables are a major part of our future energy mix and the sector will be a significant driver of investment and employment over the coming decades as we replace ageing and polluting power stations with cleaner alternatives.

“Nobody should underestimate the importance of these reforms, which will make or break progress towards the UK’s and Scotland’s renewable energy and climate change targets.

“There is still a huge amount of detail to be developed, but this broad package of measures should allow us to meet the twin aims of increasing investment in renewables and minimising energy costs for consumers.

“Despite recent media reports, these reforms will actually mean reduced financial support for renewable electricity in exchange for long term certainty over revenues, with generators potentially having to pay back income if market prices reach a certain level.

“As the Secretary of State highlighted, the growth of renewables will not just clean upo our energy supply, it will also protect consumers form price rises due to the massive and growing volatility in international gas markets, meaning lower bills for consumers over the longer term.

“We will be working with DECC to ensure that the reforms are implemented in a way that supports Scotland’s ambitious 100 per cent renewable electricity target, and encourages investment in our key sectors such as our world-leading wave and tidal industry as it seeks to develop the first commercial wave and tidal farms between now and 2020.

“Scotland can lead the the UK’s efforts to cut emissions from the power sector and increase renewables, but only with the right support from Government. Massive growth in offshore wind will bring particular opportunities for Scotland’s existing offshore engineering sector and emerging offshore wind supply chain.

“But it is not just about investment in generation – ministers must also ensure that we get the necessary investment in new grid connections, onshore and offshore, to ensure that we can get power from where it is generated to where it will be going.”

5 of the ‘Big 6′ Energy Companies that dominate the UK’s Energy Market were also quick to release statements.

British Gas parent firm Centrica Energy managing director Mark Hanafin had this to say: “There remains much detail to resolve so that investors can have confidence that the tax and regulatory environment makes the UK energy sector a good place to invest.

“These measures come at a cost and it is vital that all of us – Government, regulators and the industry – are open and transparent with the public about the impact of these changes.”

David Cockshott, Director of Industrial and Commercial Markets for Npower commented: “We found many major energy users in the UK are concerned about the legislation outlined in the EMR and the impact it will have on their operations in the UK.

“While the EMR white paper provides some clarity on the future of the UK energy market, it may not provide the reassurance intensive energy users are seeking.

“Our experience with talking to industry about the EMR suggests that they will be eagerly awaiting further detail on each of the EMR proposals so they can start to make key low carbon investment decisions.”

EDF Energy chief executive Vincent de Rivaz: “It encourages investment in generation which is both low carbon and not dependent on fossil fuel prices.

“Trust is the essence of a healthy market, therefore it is important to continue to have a dialogue about energy costs.

“Consumer bodies, the regulator, industry and Government need to work together to build understanding. Renewing Britain’s ageing energy infrastructure will have a cost. Electricity Market Reform means that cost will be kept to a minimum.”

Ian Merchant, Scottish and Southern Energy chief executive stated: ” Any changes to the electricity market arrangements have to be carefully thought through, in a way which avoids unintended consequences and is supportive of the investment that is needed now and in the next few years.

“It is on this basis that we will ultimately judge the white paper as a whole and to ensure this is achieved we will continue to work with the UK Government and other bodies.”

E. ON chief executive Dr Paul Golby: “We cannot be complacent, it’s important this is driven froward to ensure a cleaner energy future for everyone.

“And, while the onus on the energy companies is to produce, transport and supply energy as efficiently as possible, we must also remember that this is not just about companies like E. ON and the Government, this is also about helping our customers who have a vital role to play in all of this.

“By becoming more energy fit – by insulating their homes, moderating their energy usage and by generating their own power – our customers can do their bit to reduce both their bills and also their carbon emissions, dual aims that we can all get behind.”

Scottish First Minister Alex Salmond, long an advocate of renewable energy issued the following statement: “Electricity Market Reform can help realise Scotland’s huge potential for clean energy generation and ensure security of supply across these islands.

“The UK White Paper makes clear that household electricity bills will rise over the coming decades and that increases are likely to be 25% higher if the market is not reformed. Investment in low carbon energy generation that harnesses our own natural resources will reduce both our reliance on fossil fuels and exposure to volatile global prices.

“Scotland is leading the development of renewable energy generation and carbon capture and storage (CCS) technologies. EMR provides an opportunity to accelerate that, to help tackle climate change, to deliver greater energy security and to help limit rises that consumers are expected to face in the coming decades. The multi-billion pound investments required will create tens of thousands of jobs, leading to the re-industrialisation  of Scotland as we drive forwards the renewables revolution and development of CCS.

“While we support the principles underpinning EMR we have concerns about some of the detailed proposals. For example the move from the Renewable Obligation certificate regime to a Contract for Difference (CfD) mechanism must not create an investment hiatus, given the considerable progress already made and our ambitious plans up to 2020.

“We are also fundamentally opposed to the support for new nuclear plants because every pound spent subsidising this expensive and unpredictable technology of the last century is one  pound less available for investment in future growth of renewable generation. The EMR side steps the fact that the future costs of nuclear remain unquantifiable. An energy policy that relies on nuclear is an energy policy with a black hole at its heart.

“While newer renewable sources such as offshore wind have relatively high capital costs to begin with, theses will continue to reduce and be fuelled by nature indefinitely with no dirty clean up costs. Given the windfall that nuclear generators are likely to receive under the Carbon Floor Price mechanism, there should be no additional  subsidy for nuclear through the proposed CfD.

“The White Paper also pays insufficient attention to initiatives to protect consumers’ interests and I’ve stressed to (UK Secretary of State for Energy and Climate Change) Chris Huhne that this is an area that must be strengthened. EMR must support consumers by making the network smarter and more responsive, through better demand side response, storage and interconnection. A more flexible and adaptive grid can provide both energy suppliers and households with better information on energy use and cost, alongside support for energy efficiency.

“Recent investments in Scotland’s offshore renewables sector from leading companies including Mitsubishi, Gamesa, Doosan, ABB and Alstom, are testament to our great natural and human resources and supportive environment for renewable energy investment and job creation. At the same time, Longannet remains the lead candidate for the UK’s first CCS demonstration project and Scotland also has an excellent base in science and engineering to ensure that we exploit the immense potential of CCS.

“We will continue working with DECC to ensure that a coherent, effective and seamless package of reforms are delivered which will fully reflect the respective powers of the Scottish and UK Parliament. In doing so, we remain committed to maintaining Scotland’s position as ‘destination of choice’ for investment in the development, deployment and generation of clean energy.

“Scotland is estimated to have as much of a quarter of Europe’s wind and tidal power resource and around one tenth of it’s potential wave energy capacity, as well as a wealth of expertise in offshore engineering, which can position us as a massive exporter of clean energy. The UK Renewables Roadmap includes Scotland’s target for renewables to generate the equivalent of 100 per cent of annual electricity demand by 2020…

“The Roadmap recognises the huge contribution that Scotland can make to the achievement of UK and European green energy targets and this must be reflected in the final reforms to the electricity market which follow the consultation on today’s White Paper. At the same time, in order to fully harness Scotland’s massive renewables resource, fundamental change to the transmission charging regime is also required to end the discrimination against generation in those areas of Scotland with the greatest resource and to deliver the low carbon objectives of both the Scottish and UK Governments.”

Perhaps it is best to let Chris Huhne have the last word: “None of these challenges can be met for free. We will have to pay for secure, reliable, clean electricity generation including nuclear, renewable energy, and carbon capture and storage. Increases in wholesale costs and the carbon price are likely to lead to higher bills in the future, even without factoring in the huge investment needed in new infrastructure.

“So it is vital we put in place market arrangements that deliver the investment as cost-effectively as possible. The current electricity market is simply not up to the job.”

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