Electricity Market Reform

The UK Department for Energy and Climate Change (DECC) has issued its long awaited White Paper on Electricity Market Reform (EMR). 

The White Paper has four main parts:

• Feed-in Tariff with Contract for Difference - this is the renewable support mechanism to replace the Renewable Obligation (RO).
• Capacity Mechanism -  this is designed to protect security of supply. Seeks to incentivise generators to be available, but not to necessarily generate. The policy is developing and the White Paper includes further consultation on the mechanism.
• Carbon Floor Price - the policy on this aspect has been developed separately by the Treasury and announced in the Budget.
• Emissions Performance Standard (EPS) - this introduces a limit to the level of emissions, seeking to discourage carbon intensive generation.

Billed as radical it falls somewhat short of that description. In essence it tinkers with the discredited market mechanisms and does nothing to address rising prices and fuel poverty. The Government estimates that the reforms are likely to add £160 to the average annual energy bill by 2030.Norrie Kerr, Director of Energy Action Scotland sums up the fuel poverty issue:



“UK Government plans announced today on energy market reforms will undoubtedly have the effect in the short to medium term of increasing domestic fuel bills, possibly by around £160. This is an easy move by the government as it shifts the onus for the cost of reforms onto the shoulders of the energy companies. Moreover, it is a regressive step as payments to cover the costs will take the form of blanket levies on customers’ bills and will not be based on either ability to pay or level of usage. A fairer way to pay for reforms would be through general taxation.”


And it is not the end of the price rise story. The UK Climate Change Committee estimates that bills in 2020 may rise about 25%. The regulator Ofgem has a wide range of figures, largely dependent on the price of gas, stretching from 14% to 52%.



It is certainly the case that the transition to lower carbon generation will be costly under the current market structures. Renewables may be desirable - but they cost more and still require a balanced mix of generation sources. We can disregard the Scottish Government's fantasy energy policy here. 

But this is not supportable unless we address fuel poverty. Nearly 25% of the population are now struggling to pay energy bills and that is simply unsustainable. There is little in the White Paper regarding energy efficiency. The cheapest unit of energy is the one not produced in the first place by virtue of being energy efficient.

The so called market mechanisms are simply expensive games playing by the power companies and National Grid. We should reform this system and develop a credible plan for fuel poverty. Now that would be truly radical.