Energy Transition – GB experience
Giuseppina SquicciariniHead of Electricity Policy, Markets
29 May 2013
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Outline
Energy transition in GB: 3 complementary components:
1. Government's intervention to drive shift to low carbon secure energy sector – Electricity Market Reform
2. Regulation and markets important to enable and support change
3. Across the board: a transparent, highly inclusive, evidence based process
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EMR to deliver a low carbon energy sector
Low carbon technology
support
Security of supply
Capping CO2
emissions
Edward Davey, Energy Secretary: EMR is “the biggest transformation to Britain's electricity
market since privatisation”
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• The new FiT CfD available from 2014 for technologies such as wind, hydro, biomass, carbon capture & storage (CCS) and new nuclear
• The intention is to have a series of auctions in the long term, in the short term there will be technology specific reference prices.
Contracts for Difference to support investment
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GB: uncomfortably low reserve margins, potential need for a Capacity Mechanism
0%
5%
10%
15%
20%
25%
2012/13 2013/14 2014/15 2015/16 2016/17
De‐ra
ted capacity margin
Base Case Low CCGT Full imports from Continent
Full exports to Continent High CCGT
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RIIO: evolutionary change to network regulation
What remains same as RPI-X
Ex ante price control
Building blocks approach
Reward for efficient delivery
Network companies who deliver efficiently will remain financeable
What is different
RIIO = INCENTIVES + INNOVATION + OUTPUTS
Output led Longer term incentives InnovationIn the setting of
the incentives
In the price control process
New business plans
Enhancedengagement Fast tracks
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Future Trading Arrangement process to ensure a transparent approach to market changes
Future Trading Arrangements (FTA) Process:– A focal point for stakeholders to engage with Ofgem and Ministerial
Department on matters affecting trading arrangements– Build consensus on principles underpinning the trading
arrangements – support investors certainty– Seek to create a coherent, consistent and orderly approach to
ongoing changes (driven by EMR, Europe, change in generation mix, technology enabling demand response)
– Seek to ensure consistency between network and market changes
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Conclusions
1. EMR introduces policy schemes supporting investment
to address the low carbon challenge also ensuring
security of supply and affordability
2. Regulation and markets have an important role to
play: new regulatory framework to support network
investment; develop future trading arrangements to
ensure the market does “the heavy lifting”
3. The process matters: focus is on inclusive, evidence
based decision making process to assess costs and
benefits
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• Carbon Price Support is an HMT-led policy to create a floor price for carbon. It works by using taxation to top up the EU ETS price to a defined ‘floor’ which will follow an increasing trajectory, starting from £16/tonne in 2013, rising to £30/tonne in 2020.
Carbon Price Support
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Emissions Performance Standard
• The Emissions Performance Standard (EPS) puts a limit on the carbon intensity of new individual generators. It will be introduced in April 2014 at 450g CO2/kWh which will prevent any new coal plants being built.
• It will be grandfathered from the point of consent to the end of the economic life of the plant, meaning plant below 450g/kWh built now will not be impacted if the EPS is subsequently tightened.
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Some of the key challenges to current arrangements:
Renewables -magnitude not envisaged at
NETA - impact on balancing and system operation
Need for demandside response to
facilitate intermittency
EU TM requires changes to trading arrangements across forward, inter and intra day markets
Insufficient signals for market investment
Route to market for renewables – balancing
risk, counterparty availability
SO and Power Exchanges may need to adapt
Consistency with gas market
arrangements
Balancing Mechanism
Forward Trading Day ahead
Within Day
Existing arrangements assume predictable, large scale, transmission connected generation mix
and a system largely isolated from the EU