Chris Huhne the UK’s secretary of state for Energy and Climate Change, has unveiled the government’s long-awaited Electricity Market Reform (EMR) White Paper, which is being heralded as the biggest reform of the country’s power market since its privatization in 1990s.

According to the Department of Energy and Climate Change (DECC), a quarter of the UK’s generating capacity will shutdown over the next ten years as old coal and nuclear power stations go offline, so more than £110bn ($159bn) in investment will be needed to build the equivalent of 20 large power stations, as well as upgrade the national grid.

In the longer term, by 2050, electricity demand is set to double, as the UK shifts more transport and heating onto the electricity grid. Thus, as DECC puts it: “Business as usual is not therefore an option.”

The EMR White Paper sets out key measures to attract investment, reduce the impact on consumer bills, and establish a secure mix of electricity sources including gas, new nuclear, renewables and carbon capture and storage.

Seen as the blueprint for moving Britain towards a low-carbon economy, the key elements of the reform package include:

  • Confirmation of the Budget 2011 announcement that the government would put in place a carbon price floor to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now.
  • The introduction of new system of long-term contracts to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A Contract for Difference approach has been chosen over a premium feed-in-tariff.
  • An Emissions Performance Standard (EPS) set at 450g CO2/kWh to reinforce the requirement that no new coal fired power stations are built without carbon capture and storage, but also to ensure the necessary investment in gas can take place.
  • A Capacity Mechanism, including demand response as well as generation, which will be needed to ensure future security of electricity supply. The government confirmed it was seeking further views on the type of mechanism required and would report on this around the turn of the year.

Published alongside the EMR White Paper is the Renewables Roadmap, which outlines a plan of action to accelerate renewable energy deployment – to meet the target of 15 per cent of all energy by 2020 – while driving down costs.

The publication of the EMR White Paper marks the first stage of the reform process.The government intends to legislate for the key elements of the package in the second session of the current parliament, which begins in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so that the first low-carbon projects can be supported under its provisions around 2014.

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