The Department of Energy and Climate change have announced their new Energy Bill. The legislation was introduced today to Parliament by Edward Davey MP. The Bill sets out reforms to the design of the electricity market and construction of new low-carbon infrastructure.
The Energy Bill outlines reforms to the electricity market including;
Contracts for Difference (CfDs) will stabilise revenues for investors in low-carbon electricity generation projects helping developers secure the large upfront capital costs for low carbon infrastructure while protecting consumers from rising energy bills;
A new Government owned company will act as a single counterparty to the CfDs with eligible generators; This was a key recommendation of the ECC Committee, and has been welcomed by industry and investors. We also intend to develop a two stage process in which projects are able to apply for a CfD once they have cleared meaningful hurdles such as planning permission and a grid connection agreement, and then a small number of hurdles post CfD-award in order to retain the contract.
Government is taking powers to introduce a Capacity Market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed, to help ensure the lights stay on even at times of peak demand. A Capacity Market will provide an insurance policy against future supply shortages, helping to ensure that consumers continue to receive reliable electricity supplies at an affordable cost.
National Grid the System Operator is to be appointed to deliver the Electricity Market Reforms, including CfDs, administer the Capacity Market and provide analysis and evidence to Government. The Bill also provides Government with powers it may need to manage any conflicts of interest relating to this appointment.
A Final Investment Decision Enabling (FID) Enabling process will enable investment in low-carbon projects to come forward for early projects, guarding against delays to investment in our energy infrastructure.
Transitional measures will allow renewable investors to choose between the new system and the existing Renewables Obligation which will remain stable up to 2017.
Government will take additional powers so that if necessary, they can promote greater competition and liquidity in the wholesale market.
An Emissions Performance Standard (EPS) will curb the most polluting fossil fuel power stations, ensuring that any new coal fired power stations will have to have CCS fitted to be able to operate within limit.
Government has already legislated to establish a Carbon Price Floor from April 2013, to underpin the move to a low-carbon energy future.
Edward Davey said “The Energy Bill will attract investment to bring about a once in a generation transformation of our electricity market, moving from predominantly a fossil-fuel to a diverse low-carbon generation mix.
Alongside this, DECC have announced plans to cut electricity demand all over the UK. With one new scheme aiming to achieve this already underway in the form of the Green Deal.
Other incentives include;
FINANCIAL INCENTIVES - MARKET WIDE INITIATIVES:
- Premium payments - payments for each kWh saved through energy saving measures installed such as energy efficient lighting.
- An energy supplier obligation in the non domestic sector – ensuring energy suppliers deliver a specific target of electricity demand reduction in the non-domestic sector to complement the Energy Company Obligation to reduce carbon emissions that is targeted at households.
- Demand reduction included in the Capacity Market as part of Electricity Market Reform – as part of proposed reforms to the electricity market to be set out in the Energy Bill, the Government wants to ensure there is sufficient electricity capacity to keep the lights on, even at times of high demand. This consultation looks at whether there is scope for people to participate in this market by committing to permanent reductions in electricity use and so reduce the amount of electricity that needs to be produced.
FINANCIAL INCENTIVES - SCHEMES TARGETED AT SPECIFIC SECTORS:
- Financial incentives to encourage uptake of energy efficient equipment in homes and businesses – incentives to replace older, less efficient technologies with new more efficient equipment such as lighting, pumps and motors, specifically targeted at different sectors.
NON FINANCIAL INCENTIVES:
- Voluntary schemes and better energy efficiency information – clearer energy efficiency information to reduce demand, including an energy efficiency information ‘hub’ for the industrial sector and better labelling on products. The consultation looks at whether a scheme to recognise achievements by organisations who commit to buying only highly efficient products could help drive reductions in electricity use.
The full press releases from DECC are available here;