UK Government to Delay Electricity Market Reform

on Jun 4, 2012

On 2 May 2012, the BBC reported that the UK Government would put promised legislation on hold so as to make room for the House of Lords reform. Among the supposedly affected legislation is the much-debated Energy Bill, which will facilitate electricity market reforms and induce investment in low-carbon technologies. Even though BusinessGreen subsequently wrote that the Department of Energy and Climate Change (DECC) had denied the BBC report on the matter, a DECC spokeswoman noted that the precise timing of the bill had yet to be determined.

One of the purposes of the Energy Bill is to reform the electricity sector so as to boost investment in clean energy technologies. The market reform proposals include a new form of feed-in tariff to motivate companies to deliver green electricity to the grid, as well as a carbon floor price with the purpose of increasing the cost of carbon intensive energy. In addition, there is a proposal to reinforce the requirement that no new coal-fired power stations are built without Carbon Capture and Storage (CCS). As a result, the electricity market reforms are expected to drive investment in new energy infrastructure over the next decade.

The Electricity Market Reform White Paper was published in July 2011, with the energy department promising that it would legislate for the package’s key elements during the Parliament session starting in May 2012. The BBC report, however, indicated that “it was not yet clear” when a bill would be published.!m[](/uploads/story/42/thumbs/light_bulb_inline.png)

A potential delay of the bill is likely to create uncertainty among investors, and as noted by BusinessGreen, executives are already signalling that they would not authorise investments in renewable energy projects until the policy framework is finalised. The timing of the energy bill adoption might also influence decisions of wind turbine manufacturers whether to locate new factories in the UK.

The reported bill delaymight also cause an “energy gap” between the retiring of old power plants and the introduction of new cleaner energy facilities. Environmentalistshave expressed concerns that the energy gap in question will be filled by increased investment in new gas-fired power plants.
BusinessGreen quoted Greenpeace’s senior energy campaigner, Joss Garman, who urged ministers to resist any calls for a delay to the legislation. He noted that it was astonishing that the government was de-prioritising its energy market reforms, considering the “desperate need to leverage investment into securing clean, affordable energy supplies”.

The concerns of investors in the energy sector regarding the UK’s electricity market reforms correspond to the general uncertainty about the low-carbon future in the European Union. In February 2012, several European power companies sent an open letter to the EU urging it to commit to binding 2030 decarbonisation targets so as to stimulate investment in renewables.
The DECC’s reaction to the BBC report suggests that the electricity market reform might stillbe included in the agenda of the forthcoming session of the Parliament. The lack of clarity as to when the bill will be published, however, may potentially become a reason for the delay of important investment decisions in the UK’s energy sector.


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