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Electricity market reform encourages new investment

In this opinion piece, Trade and Investment Advisor at the British Embassy in Madrid, Marianne Carlin, discusses the British government’s plans to reform the electricity market – which will affect more than a quarter of the UK's generating capacity – in its transition towards a low carbon economy. She believes the reforms will provide significant opportunities for renewables.
Electricity market reform encourages new investment

The energy policy reform will give rise the closure of several nuclear and coal-fired power plants in coming years, and will find alternatives in renewable sources. The reform, far from being a destabilising element, could lead to the entry of new players and sources of finance, and could ensure the security, sustainability and affordability of the future energy supply, bringing the UK to the forefront of the industry in Europe. Indeed, it is estimated that the net gain to the economy will be about £9 billion by 2030, while market competitiveness will be maintained and average electricity bills cut.

To achieve this, a vital part of this reform will involve incentives for energy companies hoping to gain access to this market. Market certainty and the stability of the country's regulatory framework will send a clear message: Britain is open for business. For some time, collaboration between government and private business has been helping to break down barriers to entry, and will ensure the necessary increases in liquidity are achieved for the wholesale market.

Several interrelated policy instruments have been devised to ensure the security of the sector and energy supply. On the one hand, back-up generation capacity has been established that is only used when necessary, while a market-wide mechanism has been developed that rewards suppliers who offer a reliable supply. On the other, a carbon floor price has been fixed, which will encourage investment in low-carbon energy generation. The latter, together with the introduction of an Emissions Performance Standard, which will limit emissions by penalising those who exceed them, will avoid the construction of coal-fired power plants not boasting carbon capture technology, and will thus favour investments in gas.

Taken as a whole, these measures will provide the necessary support and stable revenues to "decarbonise" power generation at the lowest cost to users, as well as creating a level playing field for the different technologies competing in the sector.

The British government is clear that nuclear energy does not need to be abandoned, believing it still has a role to play in the sector, although it does intend to focus on expanding cleaner energy. It has therefore established the first renewable energy roadmap, seeking to focus on eight key technologies that can help meet current and future demand in a cost-effective and sustainable manner.

A special sector working group will also be created to develop an action plan, the main objective of which will be to reduce the cost of offshore wind power by up to £100 per MWh. £50 million in support aid for renewable energy innovation has also already been announced, along with 73 measures to overcome distribution barriers. The goal is simply to enable 25% of electricity to be obtained from this energy source in 2020.

[Looking specifically at Spain where Carlin is based,] several Spanish companies are involved in this transition through the so-called Rounds 1, 2 and 3: projects involving the deployment of offshore wind turbines around the British coast with a combined capacity of 40,000 megawatts by 2030. Iberdrola, Gamesa and Repsol were among the first to see the UK as a promising stage, which relies less and less on fossil fuels and more on energy sources that are not only cleaner but also cheaper. Following the acquisition of Scottish Power, Iberdrola has been awarded the concession to develop the second largest offshore wind farm in the UK and is also highly involved in major onshore wind and marine energy projects. Many other Spanish companies in the supply chain are following suit.

Thanks to the new feed-in tariffs introduced last year, microgeneration is also attracting Spanish companies to the UK, especially in the rooftop and off-grid solar sector.

The Feed-in Tariff Scheme, launched in April 2010, which has been amended this month [August] to favour smaller solar photovoltaic installations, also provides a feed-in tariff for anaerobic digestion, hydro and small wind. Meanwhile, the Renewable Heat Incentive entered into force in April this year to encourage the generation of heat using renewables.

The new electricity market reform and the roadmap for the development of renewable energy, therefore distinguishes the UK as a leader in supporting a low carbon economy through a stable regulatory framework and a government that is hundred percent committed to reaching its ambitious goals.

For additional information:

UK Department of Energy and Climate Change

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