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Electricity Market Reform

The Government's much anticipated consultation on Electricity Market Reform has been published today - you can download the PDF report here.

The proposals being consulted on include:

  • Carbon price support through a carbon floor price to encourage investment in low carbon technologies (the carbon price support mechanism is subject to a separate Treasury consultation which can be found online). This would be funded through an extended Climate Change Levy.
  • A feed-in tariff for low carbon generation, but one based on a contract for difference approach - a feed-in tariff that provides varying levels of support dependent upon market electricity prices. Alternatively, the Government is considering a premium feed-in tariff, or a low-carbon obligation.
  • A capacity payment mechanism to encourage security of supply (particularly relevant as intermittent and inflexible generation increases).
  • Emissions performance standards to reinforce the existing requirement that no new coal generation is built without demonstrating carbon capture and storage technology.

Importantly for those currently involved in developing renewable electricity projects, the consultation proposes that accreditation under the existing Renewables Obligation regime will remain available until 31 March 2017. Projects accredited by this date would then be able to enjoy support under the Renewables Obligation for 20 years from accreditation. The Government has also published its response to the consultation on the Renewables Obligation.

Prior to its issue, it had been suggested that the consultation on Electricity Market Reform would herald one of the most fundamental changes in the electricity sector since privatisation. On a first look, it does not disappoint. However, there is much to be debated before any proposals are implemented, so watch this space!

The consultation on the Electricity Market Reform proposals closes on 10 March 2011. The Treasury consultation on carbon price support closes on 11 February 2011.