HomeLow carbon futureWill the UK’s electricity market reform deliver investment?

Will the UK’s electricity market reform deliver investment?

davey event 030Around 100 representatives from across the energy policy field joined Ed Davey, at a Green Alliance debate on Monday, to discuss the final stages of the somewhat tortuous process of reforming the UK’s electricity sector. The main question asked was whether the process, now going into its third year, will actually result in much needed investment in both low carbon supply and energy efficiency.

Davey suggested that a key test for success would be whether we see new investment within 18 months and said that his talks with foreign investors in Japan and Korea gave him every confidence that it would. He pointed to strong cross party support for the bill (the last vote saw 396 MPs vote for it with only eight against) which should reassure investors.

Will it give enough confidence to energy efficiency investors?
Panellists questioned whether the package would deliver on electricity efficiency. Inclusion in a complex and unknown capacity market was unlikely to give investors in energy efficiency much confidence suggested Nick Eyre from Oxford University’s Environmental Change Institute. Efficiency projects are capital intensive like renewables and, therefore, need long term contracts and certainty. Nor would it provide enough funding. He pointed to forward capacity markets in the US, where they provide as little as seven per cent of total funding for efficiency programmes. Jenny Banks from WWF added that the current capacity market design needs to be changed to enable other non-generation resources like demand side response and storage to flourish.

Carbon pricing and coal
Pushed on whether more was needed to drive old coal off the system, Davey defended the use of carbon pricing and urged the need for EU ETS reform.  Jenny Banks said that allowing existing and profitable coal power stations to benefit from capacity market payments could result in massive windfalls. Bryony Worthington questioned the government’s control over European  carbon pricing policy and urged it to look at whether the EPS should apply to existing plant to prevent a renaissance in coal.

What the audience thought
Despite the vast number of problems and unknown risks discussed, the audience vote at the end of the debate was fairly positive, only a small minority thought the electricity market reform package would fail to deliver, a  significant number were unsure, but the majority were positive.

We hope that it will be strengthened by its passage through the Lords and will prove the majority of our audience right by delivering much needed investment in our energy sector.

We have created a Storify record of this event, where you can read more of what was said.

Written by

Rachel Cary leads Green Alliance's low carbon energy theme.