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Reforms to the ways in which we use energy are at the heart of Government plans to green the economy, combat climate change and move to a more sustainable society Since taking office last year, the Coalition Government has published a plethora of strategies, roadmaps and initiatives across the energy industry, all of which fall under the umbrella of the Carbon Plan: a vision of a changed Britain. The draft Carbon Plan  advocates changes across the whole economy but focuses on three fundamental areas: how we travel; the way we heat our homes; and crucially, how we generate electricity.

The reason for this focus is that transport and domestic heating are two of the largest consumers of energy in the UK. In 2009, petroleum and gas accounted for 78% of final energy consumption, with electricity making up most of the remainder.  In order to reduce our reliance on fossil fuels, the electrification of transport, heat and other carbon-intensive sectors is vital. According to projections by the Department of Energy and Climate Change (DECC), overall demand for electricity may double by 2050.

By 2020, against the backdrop of climate change, decarbonisation and the increased demand for electricity, around a quarter (20GW) of existing generation capacity is set to close and electricity prices are expected to rise. To meet these challenges, in mid-July 2011, DECC published its plans for an electric future in a White Paper for secure, affordable and low-carbon electricity, setting out a thorough reform of the electricity market. As stated by Chris Huhne, Secretary of State for Energy and Climate Change, ‘these reforms will yield the biggest transformation of the market since privatisation, securing our future electricity supplies and heralding the shift toward a low-carbon economy.’

The reform package consists of four elements: feed-in tariffs with contracts for difference, a carbon price floor, an emissions performance standard and a capacity mechanism. All but the capacity mechanism are now firmly laid out in the Government’s plans, with a further round of consultation taking place to seek views on the alternative approaches, namely a targeted or market-wide mechanism.

The feed-in tariffs with contracts for difference will be tailored for different generation types, giving guaranteed prices over the lifetime of projects. The carbon price floor (i.e. putting a minimum price on carbon), will come into force in 2013, with specific legislation relating to tax reliefs for carbon capture and storage (CCS) and combined heat and power (CHP) being introduced in the 2012 Finance Bill. The emissions performance standard will set an annual limit of 450g CO2/kWh on the total amount of CO2 per unit of installed capacity that new power stations are allowed to emit.

Responding to the Government’s consultation on electricity market reform earlier this year, members of the Energy Institute (EI) expressed the view that, whilst recognising the benefits of introducing a capacity mechanism, they do not see this as important a measure as the feed-in tariffs or carbon price support mechanisms. EI members will therefore welcome this further consultation which addresses the concerns that a targeted capacity mechanism could disincentivise investment in new capacity and accelerate end-of-life for generation assets which are not included within the mechanism. A capacity mechanism that rewards flexibility would foster innovation and be a natural complement to the intermittent generation joining the grid.  EI members will also be encouraged by the White Paper’s recognition that new non-generation measures such as demand-side response systems, electricity storage and interconnection also have significant roles to play, particularly in reference to a capacity mechanism.

What is clear is that substantial investment is required in all elements of energy infrastructure in the UK if the goal of decarbonisation by 2050 is to be achieved. Billions of pounds must be invested in physical assets and their systems, user technologies and importantly the human expertise to innovate, design, execute and operate the new decarbonised system.

The Energy Institute (EI) is the leading chartered professional membership body for the international energy industry, responsible for the development and dissemination of knowledge, skills and good practice, working towards a safe, secure and sustainable energy system.

[1] Carbon Plan, HM Government

[1] Digest of UK Energy Statistics 2010, DECC

[1] Planning our electric future: a White Paper for secure, affordable and low-carbon electricity, DECC, 2011

[1] EI submission in response to the DECC EMR consultation, Energy Institute, 2011

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Written by Gareth Parkes   
Thursday, 04 August 2011 13:13

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