UK electricity market reform will fail says MPs

The UK Department of Energy and Climate Change’s (DECC) electricity market reform proposals will fail to deliver the necessary investment in its energy infrastructure, a committee of MPs said.
DECC has announced a new policy framework designed to encourage companies to invest some GBP110bn($178bn) in power infrastructure over the next decade. However, a highly critical report from the energy and climate change committee suggested that his “over-complex” proposals would not raise this amount of capital, reports the Financial Times.
The government proposes a feed-in tariff system designed to reward low-carbon methods of generating electricity. But the feed-in tariffs suggested in a consultation paper in December, are best suited to encouraging new nuclear power stations and biomass plants, said the report.
“The government’s ‘one- size-fits-all’ approach will fail to bring forward the low-carbon investment we need. The model of contracts proposed may be appropriate for some generators, such as nuclear and biomass, but could increase costs and risks for intermittent generators such as wind and technologies like carbon capture and storage and electricity storage,” the report read.
The committee proposed that “alternative kinds of long-term contracts should be designed for other kinds of low-carbon generation”. The MPs urged Mr Huhne to “create an independent expert institution to design these contracts as soon as possible”.
The coalition agreement specified that new nuclear power stations would get no “public subsidy”. The proposed tariffs were designed to finesse this pledge, giving the companies that build new reactors guaranteed returns via higher consumer bills, rather than direct subsidy from the public purse.
Tim Yeo, the Conservative chairman of the committee, said this was about “coalition politics” and had “no energy rationale”. The aim was to cope with the “historical, long-term opposition among the Liberal Democrats to nuclear power”.
The government’s proposed reforms would not affect the wholesale electricity market. As a result, the changes were unlikely to threaten the dominance of the UK’s “big six” utility companies. The MPs believed that the wholesale market should be opened up, allowing new entrants.
They warned that the established utility companies may not be able to provide the investment needed, which will total GBP200bn over the next decade when all the country’s energy requirements were taken into account. “Radical reform of the wholesale energy market is needed to stop the Big Six from stitching it up, but at the moment Ministers are only tinkering at the margins,” said Yeo.
DECC said the committee’s recommendations would be “studied” and a white paper on the reforms would emerge before the summer recess of Parliament.

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