CCC welcomes Government’s commitment to transform the power market – 1 January 2011

The Committee on Climate Change today welcomed the Coalition Government’s announcement of radical reforms to the power market that will assist the UK in meeting carbon budgets. The reforms proposed include the introduction of a floor on the price of carbon and the use of long-term contracts to encourage investment in clean energy.

David Kennedy, Chief Executive of the Committee on Climate Change said: 

“We strongly welcome today’s announcement. The four reforms proposed by the Government should bring forward required investments in clean power generation technologies over the next two decades, and limit price impacts for consumers. Within the package, the key reform is the introduction of long term contracts for low carbon capacity; these would provide confidence to investors and reduce financing costs. There are questions of detail around contract and market design which will need to be resolved over the next months. But the basic model proposed is in our view the right one to transform the electricity sector in a way consistent with meeting carbon budgets, enhancing security of supply, and maintaining affordability”. 

The CCC’s recent report on the Fourth Carbon Budget recommended that the power sector be almost completely decarbonised by 2030, with 30-40 GW of new low-carbon plant added to the grid by then.

In order to achieve this, the report argued that radical reform of the electricity market will be required to provide greater certainty to investors.

The four reforms launched by the Department of Energy and Climate Change and HM Treasury today will aim to:

  1. Provide a clearer long-term price for carbon by putting in place a carbon price floor
  2. Set out long term contracts for low carbon generation that will make clean energy investment more attractive.
  3. Introduce additional payments to encourage the construction of reserve plants or demand reduction measures (so-called ‘negawatts’) to ensure the lights stay on.
  4. Introduce a back-stop to limit how much carbon the most dirty power stations – coal – can emit through the use of an Emissions Performance Standard.

Energy and Climate Change Secretary Chris Huhne said:

“These reforms lay the foundations for a sustainable economy, bringing billions in investment in the UK through greater certainty, safeguarding jobs up and down the supply chain, and giving the UK real competitive advantage in advanced energy technologies”.

Relevant links: 

  • The consultation document on a carbon floor price is available on the Treasury website. Responses to be made to the Treasury by 11 February, with final decisions expected in the Budget on 23 March 2011.
  • The consultation document on the other three components of electricity market reform are available on the consultation pages of the DECC website. Responses invited by 10 March 2011, with final proposals expected in a White Paper in late Spring.
  • A parallel review of Ofgem and the energy regulatory framework is also under way to clarify the respective roles of the Government and Ofgem. Responses to the Government’s initial consultation are published today on the consultation pages of the DECC website.
  • Read the CCC’s advice on the power sector in the Fourth Carbon Budget report