EnergyUK sets out proposals to make EMR fit for purpose for the future

EnergyUK has set out proposals to revisit Electricity Market Reform measures ahead of a planned review in 2019.

The lobby group says the Contracts for Difference framework should be maintained as it has been a “successful tool for delivering investment and bringing forward low-cost low-carbon generation.” As CfD strike prices approach wholesale price levels the government should keep low-carbon costs low, by using ‘revenue stabilisation’ CfDs. That would protect renewables from wholesale price variations caused by fossil-fuel price volatility, provide predictable revenue streams and reduce the cost of borrowing. The group also called for clarity about future allocation rounds, saying “Even for less-established technologies, the lack of visibility of future allocation rounds beyond spring 2019 is holding back the development of a thriving UK supply chain”.

On the Capacity Market, the group said it was “fundamentally the right mechanism for promoting the necessary investment” and it had reduced costs for consumers. But the raft of changes proposed reflected one of the market’s problems: the complexity of the CM Rules and inconsistencies in their application, which it said “cause difficulties for industry, acting as a barrier to entry for new market participants and a burden on existing developers”.

Among the proposed changes, EnergyUK included opening the market to renewables (not receiving other support) and ‘hybrid’ sites such as those with wind and storage (which are also currently not covered by etc CfD mechanism). The penalty regime and termination fees need reform.  Governance of the Capacity Market, which is currently split between BEIS, National Grid and Ofgem, urgently needs reform. The group put forward proposals for self-governance, to streamline a system where rule change periods can overlap with prequalification. It said much of the process could be devolved to self-governance, including most aspects that can currently only be changed with primary legislation.  That could be accompanied by an expert panel or working group with Ofgem acting as an ex officio chair. The EMR Delivery Body could provide the secretariat function.

The group also called for a review of market rules for offshore transmission owners (Oftos).

Read EnergyUK’s ‘vision paper’

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