Energy policy

Response to the Electricity Market Reform Consultation

Summary

  1. We agree that electricity market reform is required in order to enable a shift to more sustainable energy systems, and enabling that shift to begin now is vital if we are to meet our longer term targets.  Reforming markets is an expensive and risky process, and it is important to get it right rather than having to repeat the process in the future to rectify costly mistakes made now.
  2. We do not consider the EMR a reform, if reform is taken to mean change aimed at improvement. If the EMR had been a reform, it would have placed the goal of reducing energy at its centre, as the cheapest and most effective way of delivering improved security, reduced carbon emissions and stable prices.
  3. The government claims that the intention of the EMR is to encourage low carbon investment.  However, it seems to us that the overarching aim of the EMR from the Government’s perspective is to enable the building of new nuclear power, rather than the various other laudable objectives set out in the consultation. The Government obviously does not have the same priority for those wider objectives..
  4. We do not agree that nuclear power is a necessary or appropriate part of the future energy system. We explain in detail below our views of each mechanism but in brief we argue that together the four mechanisms are designed to raise prices for electricity to such an extent that the Government will not be required to provide public subsidy for new nuclear power or to contravene European State Aid requirements.  We are not averse per se to higher prices of energy but we do think that the costs of moving to a sustainable energy system [which are passed on to customers] should not be done so with a disregard to the fuel poor or when the risk and likelihood of failure of meeting the objectives of the policy is high, as it is the case here.
  5. Our specific comments on the mechanisms can be summarised as:
    1. The Carbon Price Support is unlikely to lead to non-nuclear investment and will cause leakage to Europe;
    2. the Capacity Mechanism (CM) should be undertaken via a system operator and include the demand response;
    3. the CfD FITs are an inappropriate means to support such diverse low carbon technologies; it is a misnomer to call it a FIT since the risk remains with the generator; establishing the strike price for nuclear power or CCS is unlikely to be ‘right’.
    4. the Emission Performance Standard is a belt and braces approach and we do not comment on it further

Together the proposed mechanisms lead to an extremely complex electricity market which must have a high chance of failure and unforeseen consequences. In addition, it will lock in investment in the current energy system configuration, rather than encouraging sustainable innovation.

Overall, we consider that the preferred options have such a high chance of failure or unforeseen consequences, that there are other cheaper and easier options and that the Government should think again.

Read the Engery Policy Group Response to Electricity Market Reform Consultation (.pdf)  in full.