The Electricity Market Reform (EMR) consultation is a package of proposed reforms which will bring the biggest changes to the electricity market since privatisation some 20 years ago.
There are quite a few people still working in the industry who, like me, have seen plenty of changes to the market in those 20 years – the creation and abolition of the Electricity Pool; the ‘New Electricity Trading Arrangements (‘NETA’) in 2001 and the extension of ‘NETA’ to Scotland. Support for renewable energy has seen upheavals, too. Privatisation brought the Non-Fossil Fuel Obligation (NFFO); then the ‘technology-neutral’ Renewables Obligation (RO); then, in 2009, a ‘banded’ RO with different rewards for different technologies, supplemented in 2010 with a ‘Feed-In Tariff’ for small schemes. Now, we face new proposals.
Investors could be forgiven for raising their eyebrows. They want stability and predictability, of course. So, the latest package is quite a massive challenge. But, so is the level of investment we need to attract to build new power stations using low carbon emitting technologies – renewables, nuclear and fossil fuels with CCS – energy networks and smart infrastructure.
The government’s intention, through EMR, is to make the electricity market attractive to investors and convince them that they will get a decent return on the billions that have to be raised.
That is the test and it is a tough one.
The UK is not alone in looking for major investment in its electricity industry and recent events in the financial world will have made investors even more cautious. Not only that, but, an industry that used to be dull and relatively safe is being steered by the climate change agenda towards what are perceived as greater risks. Those risks lie in the pressure to adopt the new technologies needed to deliver a low carbon electricity supply industry. Not only are some of the technologies relatively new, but, some deliver power less predictably and more expensively in a market (NETA) that was designed to reward reliable supply and competitive prices and penalise those that could not deliver that.
Inevitably, there is a wide range of opinions and thoughts on the EMR consultation and DECC has stated that the document is a work in progress. The government wants to receive feedback to ensure that the package is the right one for the industry.
AEP anticipated much of what was published in December and has been considering possible reforms for many months. The members are working hard through the Association and their own companies to present useful input to DECC.
Some of the proposals in the consultation raise as many questions as they answer. Perhaps that is not surprising in an industry where ‘everything is connected to everything else’ and unintended consequences arise so easily. But, on reflection, that is just the kind of thing that the opponents of privatisation said in the late 1980s.