Market Reforms Announced To Attract UK Nuclear Investment

Posted by PJ Owen (SONE Webmaster) on 29 November 2012 in Articles

Tagged with: Contract for Difference, Ed Davey, Low Carbon, Office for Nuclear Regulation.

Reforms to the UK’s electricity market including the introduction of “contracts for difference” are intended to help the country’s energy sector – including the nuclear industry – attract “record investment”, the government has said.

The proposed measures are part of a 110 billion-pound (176 billion US dollar, 84 billion euro) effort outlined in an Energy Bill today intended to spur the construction of nuclear, gas and wind power plants.

“The Energy Bill will attract investment to bring about a once-in-a-generation transformation of our electricity market, moving from predominantly a fossil-fuel to a diverse low-carbon generation mix,” energy secretary Ed Davey told lawmakers in Parliament today to introduce the legislation.

He said: “The Bill will support the construction of a diverse mix of renewables, new nuclear, gas and CCS, protecting our economy from energy shortfalls and significantly decarbonising our electricity supply by the 2030s as part of global efforts to tackle climate change.”

The contracts for difference (CfDs) will stabilise revenues for investors in low-carbon electricity generation projects such as nuclear, helping developers secure the large upfront capital costs for low carbon infrastructure while protecting consumers from rising energy bills, the government said.

In a series of government committee hearings into the possibility of new nuclear build in the UK, energy companies had called for market mechanisms such as CfDs, saying they would make investment more attractive by removing long-term exposure to electricity price volatility.

CfDs will stabilise returns for generators at a fixed level known as a “strike price” and insulate consumers by clawing back money from generators if the market price is higher than the strike price.

Today’s Bill says a new government owned company will act as a single counterparty to the CfDs with eligible generators. This was a key recommendation of the government’s energy and climate change committee and has been welcomed by industry and investors, the government said.

The government also intends to develop a two-stage process in which projects are able to apply for a CfD once they have cleared meaningful hurdles such as planning permission and a grid connection agreement, and then a small number of hurdles post CfD-award in order to retain the contract.

The government is also taking powers to introduce a capacity market, allowing for capacity auctions from 2014 for delivery of capacity in the winter of 2018/19, if needed, to help ensure the lights stay on even at times of peak demand.

A capacity market will provide “an insurance policy” against future supply shortages, helping to ensure that consumers continue to receive reliable electricity supplies at an affordable cost.

System operator the National Grid is to be appointed to deliver the electricity market reforms, including CfDs, administer the capacity market and provide analysis and evidence to the government.

The bill also says oversight of the nuclear industry will be improved by creating an independent statutory nuclear regulator, the Office for Nuclear Regulation.

The Energy Bill is online