Emissions from electricity generation account for around a quarter of the UK total.

Between 2009 and 2014 power sector emissions declined on average by 4% per annum, with a record 18% fall during 2014. Decarbonisation of the power sector is crucial to economy-wide decarbonisation, given the potential for electricity to provide a low-carbon fuel to other sectors. The Energy Act was passed in 2013, enabling reform of the electricity market to support the transition to a low-carbon power sector. The first low-carbon generation contracts signed under Electricity Market Reform aim to continue the good progress made in reducing emissions, towards 2020. This is an important step forward, but there remains a high degree of uncertainty over investment beyond 2020.

The Government should address this by:

  • Ensure the power sector can invest with a 10-year lead time, by extending funding to match project timelines (e.g. to 2025 with rolling annual updates)
  • Continue with auctions under Electricity Market Reform, maintaining momentum by adhering to the proposed timings and working with industry to learn lessons from the first auctions.
  • Set out an approach to commercialise CCS through the planned clusters: including a strategic approach to transport and storage infrastructure, completing the two proposed projects and contracting for at least two further ‘capture’ projects this Parliament.
  • Support offshore wind until subsidies can be removed in the 2020s: set out intention to contract 1-2 GW per year and wider innovation support provided costs fall with view to removing subsidies in the 2020s.
  • Be transparent over the full cost of technology choices: including the cost of alternatives if low-cost options are constrained, system integration costs and the full carbon cost of fossil-fired generation.

 Progress against indicators and milestonesChallenges
Market The Government has passed enabling legislation for a system of long-term contracts in the Energy Act 2013. The first auctions for low-carbon generation and for capacity took place successfully in 2014.Clarity needed for investors after 2020. This should be provided through by a Government commitment to decarbonisation beyond 2020, commercialisation strategies for less mature technologies, and extending funding.
Transmission Ofgem‘s review of Transmission Network Use of System (TNUoS) charges under Project TransmiT has concluded and will be implemented from 2016. Policies to allow renewable electricity to connect to the grid (Connect and manage) and enable offshore transmission assets to be owned by an independent third party (the OFTO regime) have been implemented successfully.Some delays in implementing infrastructure, as well as an ongoing review of the needs case for some future transmission assets (but enough to accommodate 2020 renewables output). A further 22 GW of transmission infrastructure could be needed to cost-effectively accommodate increasing levels of low-carbon generation.
Wind -PlanningOnshore: A decrease in project approvals from 67% (between 2007-2013) to 55% in 2014.Offshore: historical approval rates close to 100%, determination periods are down to 1.5 years, compared to 3-4 years in 2012. Contracts signed under Electricity Market Reform  suggest pipeline capacity will meet2020 indicators.
Wind – installed capacityOnshore: investment has made good progress and installed capacity is consistent with the level of ambition in our indicators (8.3 GW installed at end of 2014). Performance in line with assumptions. Offshore: Good progress and level of capacity is consistent with indicator framework (4.5 GW at end of 2014).Resolution of financial and non-financial uncertainties required in order to translate the strong project pipeline into generation. In particular, need to provide clarity over incentives and ambition beyond 2020.
NuclearFirst reactor project design (Hinkley C) received planning
approval and the terms and level of support were agreed (including a strike price of £92.5/MWh). State aid approval was granted by the European Commission in 2014.Horizon venture: aim to submit planning application for Wyfla ahead of major on-site work in 2018. Development continuing at Oldbury. Generic Design Assessment (GDA) for reactor design is underway.

NuGen venture: expects to enter planning 2015/16, the GDA for this reactor design has already commenced.

A Final Investment Decision is still pending on Hinkley Point C. Delivering to time and budget for first project will provide confidence that a new nuclear program in the UK can be delivered cost-effectively.
CCSSecond commercialisation programme has selected
two preferred bidders (White Rose in Yorkshire and Peterhead in Scotland). FEED studies for these two projects have begun and expect to complete end of 2015.
Momentum must be maintained so these two projects can become operational by 2019/20. Approach should be set out for further demonstration projects and longer-term commercialisation strategy to maintain momentum beyond the demonstration projects.