UK Energy Secretary Ed Davey yesterday confirmed that the government’s Energy Bill will be published next month.
He said the ultimate intention of the Bill was to “move from price setting by ministers to price discover by market.”
“Eventually I want to see low carbon power sources competing on cost alone,” he told a meeting of energy players, journalists and members of the CBI (Confederation of British Industry).
“But we can’t just flick a switch and make that happen instantly. Our reforms are explicitly intended to move to a market-based, price-discovery model.
He said the government’s Electricity Market Reform would come in four phases. “In Phase One, we’ll introduce a mechanism that will offer reliable contracts, delivered in a way that is trusted by investors. That mechanism is the feed-in tariff with contracts-for-difference. Prices will be set administratively, aiming to bring all technology groups down in cost and begin levelling the playing field. The generator sells its electricity in the market, and is paid a variable premium to top up if necessary. And if the market price is higher than the strike price, the generator pays back the difference.”
He said Phase Two would see “the first technology-specific auctions, where prices will be set competitively by the market and, for example, onshore wind generators will start to compete with other onshore wind generators, as early as 2017”.
Phase three would bring about the introduction of technology-neutral auctions. “So in the 2020s, low-carbon technologies should start to compete with each other in a true low-carbon electricity market.”
This, said Davey, would lead to Phase 4: “When all technologies are mature enough, and if the carbon price is high enough and sustainable enough, all generators could compete without any intervention.”
He also announced that a Network Innovation Competition in the gas industry, “which would see industry invest £160m over an eight-year period in innovation and greater efficiencies in the grid”, would “go ahead at the earliest opportunity”.
And he unveiled proposed changes to Section 36 of the Electricity Act 1989, which came into force before the current Planning Act. He explained that currently “if a biomass developer with Section 36 consent wanted to change the type of fuel it burns, or a wind farm developer with consent wanted to add a couple more turbines, they would have to submit a completely new application to the Planning Inspectorate under the Planning Act – a process which could take over a year”.
This he said was “unnecessary red tape” and revealed that developers wishing to apply for changes to their project’s Section 36 consents will soon, in most cases, need to undertake only a three-month consultation. “This could unlock investment decisions across a range of technologies, bringing thousands of new jobs and billions of pounds of investment to the UK economy,” Davey added.