company position: electricity market reform
Last updated: 22/12/2011
We broadly support the aims of the EMR to promote renewables and ensure security of supply but would urge a ‘market-friendly’ approach where possible.
We have concerns over specific proposals including the Capacity Mechanism and Feed-in Tariffs and believe the proposed timetable to implement the reforms may prove too ambitious.
capacity mechanism
As a general rule we believe capacity mechanisms are unproven, expensive and do not encourage new investment. Even with a capacity mechanism in place there are still no guarantees that the energy will be there when needed.
Instead of a market-wide approach, we would favour a targeted extension to the existing Short Term Operating Reserve (STOR).
Under such a solution energy needs could be determined on an on-going basis and while additional capacity may not be needed for several years, a mechanism would be in place to assess the requirement. It would also deliver a targeted approach, build on existing arrangements in the market and be more easily understood.
However, if either of the capacity mechanisms that DECC has outlined is pursued we would prefer the targeted strategic reserve with last resort dispatch option.
We agree that storage, demand side response and greater levels of interconnectivity should be integral elements of any capacity mechanism. We are keen to see incentives for developing technologies and innovations in these areas.
Demand reduction is entirely appropriate for very short term response where the reductions can be demonstrated but requires a system which monitors and profiles usage so that only genuine reductions are rewarded.
feed-in tariffs
We believe extending FiTs to larger scale projects will help encourage investment in renewables but it is important to ensure smaller players are not disadvantaged.
Consideration should be given to a MW limit if the allowable range of technologies is particularly wide to prevent the risk that independent investment is squeezed out by large projects built by existing vertically integrated companies.
CfD proposal
We are concerned that the proposed ‘CfD with auction’ mechanism will lead to increased costs for suppliers and customers which have not been properly considered. Many successful bidders under such a mechanism would also find their projects are ultimately not viable at the price struck.
Of the FiT options originally outlined we had favoured the ‘Premium FiT’ route as it is more transparent and the simplest for investors.
We are also concerned about the RO and FiT arrangements existing side-by-side between 2013 and 2017. This would lead to a great deal of uncertainty in the ROC market.
central renewables agency
We believe that any form of centralisation would distort the market and give an unfair advantage to wind over other forms of generation.
It is important to point out that wind developers are currently free to contract with a range of suppliers to gain the benefits a larger portfolio brings in terms of balancing.
Should the current package of proposals fail to deliver the investment required, then further incentivisation would be the best course of action.
For additional information, please contact us.
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