1. Progress of Electricity Market Reform in the UK
Angela Knight, Chief Executive, Energy UK

2. Electricity Market Reform (EMR)2
Electricity Market Reform (EMR)
The policy was designed to:
Promote decarbonising of the electricity generation sector as the principle route for meeting the UK greenhouse gas emissions.
Provide a subsidy for all low carbon generation and not just renewables (nuclear and CCS); and
Set in place a framework for a capacity mechanism to ensure that electricity is available to meet demand from existing and new converted generation.

3. Currently being decommissioned3
UK Generation Fleet
The UK generation fleet is old and the reinvestment challenge is significant:
Coal (30-40%); gas (30-40%); and nuclear (15-20%); balance renewables
Much of the coal is closing due to the LCPD and the balance by 2200 to meet the IED
Nuclear is old and needs rebuilding
Station
Technology
Status
Capacity
Date of Closure/
mothballing
Teeside
CCGT
Closed
1875MW
April 2011/October 2013
Kings Lynn
mothballed
325MW
March 2012
Roosecote
165MW
October 2012
Keadby
735MW
March 2013
Derwent
closed
214MW
December 2012
Kingsnorth
Coal
2.0GW
December2012
Grain
Oil
1.3GW
Shotton
210MW
June 2012
Didcot A
Cockenzie
1.2GW
Tilbury
Coal/Biomass
1.1GW
October 2013
Fawley
1.0GW
Uskmouth
0.36GW
March 2014
Ferrybridge
Partial closure
0.98GW of 1.98GW
Peterhead
1.8GW of 2.2GW
Ironbridge
Biomass/coal
Due for closure
340MW
By end of 2015 (under LCPD)
Littlebrook
1245MW
Barking
1000MW
Currently being decommissioned

4. Government and Opposition Parties publically declared vision is to:4
Government and Opposition Parties publically declared vision is to:
Decarbonise power generation; and
Maintain security of supply; and
Keep energy affordable
Known as the “trilemma”, is this achievable?

5. The Contract for Difference (CfD) is at the heart of EMR5
The Contract for Difference (CfD) is at the heart of EMR
Gives revenue certainty to investors in low carbon generation, including wind, solar, biomass and nuclear and CCS
Government has set administrative strike prices but there will be compensation for contracts based on prices.
CfD generators sell their output into the market in the normal way but when the wholesale market is below the strike price, the generation is “topped up”
The sum over and above the wholesale market price is added to the consumer bill. This is all done through the central counterparty.

6. Contracts for Different and “strike prices”6
Contracts for Different and “strike prices”
Published administrative strike prices are:
Onshore wind – 95mwh
Offshore wind – 155mwh
Biomass – 105mwh
Nuclear – case by case (Hinkley Point C offered mwh)
Solar – 120mwh

7. Contracts for Different and “strike prices”7
Contracts for Different and “strike prices”
CfD’s awarded to date are:-
Total additional cost on consumer bills by 2020 for CfDs capped at £7.6bn. CfD works out at roughly £30 per annual average domestic bill by 2020.
£104 overall from all low carbon spends under the LCF
Project
Developer
Technology MW
Location
Beatrice
SSE - Beatrice Offshore Windfarm Limited
Offshore wind
664
Outer Moray Firth, Scotland
Burbo Bank extension
Dong Energy Wind Power A/S
258
Liverpool Bay
Drax Unit #1
Drax
Biomass conversion
645
Selby, North Yorkshire
Dudgeon
StatOil and Statkraft - Dudgeon Offshore Wind Limited
402
The Wash
Hornsea 1
1200
North Sea, off the Yorkshire coast
Lynemouth
Lynemouth Power Limited
420
Ashington, Northumberland
Teesside
MGT Power Limited
Dedicated Biomass, CHP
299
Middlesbrough
Walney Extension
660
Irish Sea

8. Investment slowing £100 Billion required by 2020 or thereabouts8
Investment slowing
£100 Billion required by 2020 or thereabouts
Current expenditure run rate is £13bn pa and is substantial considering:
Falling energy demand;
Pressure from consumers on affordability; and
Political, regulatory and policy risk
Renewables capacity grew by 50Gw in 2013 to 20Gw in total and projected to double by 2020.
Investment in conventional generation insufficient
Capacity market introduced with first auctions this year

9. Issues (1) Wholesale market depressed by policy interventions9
Issues (1)
Wholesale market depressed by policy interventions
Gas economies problematic
Capacity market does not deliver until 2018/2019
Closure programme accelerated and capacity margin narrowed – down to 4.1%.
Concerns rising in respect of security of supply

10. Issues (2) Interconnection tendency to be substantial due to:10
Issues (2)
Interconnection tendency to be substantial due to:
Carbon price floor
Balancing and transmission costs apportionment
“merchant” interconnector model
Market no longer gives market signals
Consumers resisting paying for the programme
Increasing concern in respect of onshore wind
Generation closure programme and new generation opening programme not connected.