The Department of Energy and Climate Change (DECC), has opened a consultation on the draft Electricity Market Reform (EMR) Delivery Plan, published yesterday (17 July).

The plan provides detail on the electricity market support mechanism, long-term Contracts for Difference (CfD), and draft ‘strike prices’ (the price paid for electricity produced) for investors in renewable energy, as part of DECC’s aim to ‘help incentivise up to £110 billion of investment in new electricity infrastructure by 2020’.

According to DECC, the need for a renewable energy market is ‘crucial’, as around a fifth of Great Britain’s coal and oil-fired power plants will close by 2020 (to meet environmental standards), and electricity demand will ‘grow significantly’ as heat production and vehicle fuel turn away from fossil fuels to electricity.

However, many have criticised the government for failing to bring forward a decarbonisation target for the electricity sector in the new Energy Bill (expected to receive Royal Assent by the ‘end of 2013’), with DECC saying instead that a target will be set in 2016 (after the general election), once government has ‘received advice from the Committee on Climate Change on the level of the Fifth Carbon Budget’.

It is hoped the plan will prevent energy prices from drastically rising, as predicted by many in the energy sector, including Ofgem Chief Executive Alistair Buchanan.

Electricity Market Reform Delivery Plan details

The draft EMR Delivery Plan outlines how government intends to promote renewable energy, and provides further details on:

• Contracts for Difference: this aims to support investors in low-carbon energy, by ‘removing commercial risks’, such as wholesale price risk. DECC says CfDs will make it cheaper to deliver low-carbon generation by around £5 billion up to 2030 because they will ‘deliver cost of capital reductions that cannot be achieved through existing schemes’;
• The methodology behind the level of draft strike prices for renewable electricity (announced on 27 June);
• The Capacity Market: Government is proposing the use of a ‘reliability standard’ – an ‘objective level of security of electricity supply, which will be the basis for establishing a demand curve in advance of each capacity auction’ – to guide how much capacity is auctioned in the first Capacity Market in 2014, for delivery in 2018-19;
• Assessment of the price and bill impacts of Electricity Market Reform: DECC expects the EMR to reduce annual household electricity bills by an average of £63 (nine per cent) over the period 2016 to 2030, compared to meeting the same policy goals using ‘existing policy instruments’;
• Scenarios for technology deployment and decarbonisation from now to 2030:this sets out three scenarios for decarbonisation of the power sector out to 2030, showing the level of deployment of different technologies required to decarbonise the power sector to 50 grammes of CO2 per kilowatt hour (g/kWh), 100g/kWh and 200g/kWh. DECC has also modelled scenarios showing higher deployment rates for carbon capture and storage (CCS), nuclear generation and offshore wind out to 2030, which assume that the power sector is decarbonised to 100g/kWh by 2030.

Notably, although the plan does support plants wishing to convert to biomass through strike prices, these will only be available until 20207. Further, DECC is not offering strike prices for new-build biomass plants as ‘new build electricity-only biomass plants do not offer as cost-effective a means of decarbonising the electricity grid as other renewables technologies, including offshore wind’.

Plan ‘will provide investors with further certainty’

Speaking of the delivery plan, Secretary of State for Energy and Climate Change Edward Davey said:“The delivery plan will provide investors with further certainty of government’s intent, so that they can get on and make crucial investment decisions that are supporting green jobs and growth.

“The strike prices we have set will make the UK market one of the most attractive for developers and investors in renewable energy… The new strike prices will mean that renewables can contribute more than 30 per cent of our power mix by 2020, putting us on track to seeing significant decarbonisation of the power sector by 2030 and meeting our wider climate targets.”

Davey added that the CfDs for renewables will make it “cheaper to deliver low-carbon generation by around £5 billion up to 2030” and will “support up to 250,000 jobs across the energy sector”.

He added: “As well as being good for green jobs and growth, what we are doing will protect our environment.”

Future of biomass uncertain

While members of the energy industry have largely welcomed the plan, there have been mixed responses to DECC’s decision to move away from biomass.

Speaking of the omission of strike prices for energy produced from new-build biomass plants, Chief Executive of the Renewable Energy Association, Gaynor Hartnell, said the decision “sends a terrible message to investors”.

She said: “The lack of a strike price for new-build biomass means support for this important technology has effectively come to an end, and we urge the government to reconsider. The UK desperately needs new power generation capacity and has a legally-binding renewables target to meet.

“[U]ntil today, project developers had the alternative option of a contract under the new policy. [Now] that option has been closed off. This is a U-turn…It should not be a case of choosing between converting coal-fired power stations to biomass or building new projects; the two operate at different scales and both can play an important role.”

However, the British Furniture Confederation (BFC) has welcomed the decision, as it has warned that biomass could have a ‘devastating knock-on effect on UK furniture manufacturing’.

BFC Chairman, Paul von der Heyde, said: “[T]his is a victory for common sense… Government subsidies for large biomass power companies have driven the demand for virgin timber, resulting in increases in its price. It never made sense that virgin timber was being burned on a large scale rather than being used to produce products, such as furniture, before having a second life.”

Environmental group the Royal Society for the Protection of Birds (RSPB) also welcomed the move away from biomass, after a report it commissioned along with Greenpeace and Friends of the Earth found that burning to generate electricity could be ‘dirtier than coal’.

Writing in a blog yesterday, Harry Huyton, Head of Climate Change at the RSPB said he ‘welcomed’ government’s decision to ‘curb support for “big biomass”’.

Referring to the decision to end all financial support for coal power stations converted to wood in 2027, Huyton wrote: ‘This is a clear and welcome signal that DECC is serious that wood power is transitional, and will not form a permanent part of our electricity mix.

‘This cooling towards biomass power is also apparent from new government projections on its role in 2020. Previously, government hoped that six gigawatts of biomass electricity would be in operation by the end of this decade. This has now been scaled back by up to two thirds.

‘It’s clear, however, that this is not enough. It’s a step away from unsustainable bioenergy, but government needs to go the full journey. That means a cap on support for all wood-fired electricity, not just new power stations. We’re also calling for the new emissions limit on coal power stations to count the carbon emissions from burning wood, rather than erroneously assuming they are zero. What’s more, we want to see a fresh push behind sustainable bioenergy, such as anaerobic digestion from wastes and ultra-efficient combined heat and power generation from forestry and agricultural arisings.’

Roger Salomone, Head of Business Environment Policy at manufacturers’ organisation EEF, added that government now ‘urgently’ needs to issue “a clear timetable setting out when technologies in receipt of significant subsidies, funded by the consumer, will stand on their own two feet”.

Once the consultation closes on 25 September, a final version of the EMR Draft Delivery Plan is expected to be published in December.

Read the consultation document.