Squaring the triangle – do the EMR proposals resolve the trilemma?
Dr Paul Golby, CEO, EON
“May you live in interesting times” goes the old (allegedly) Chinese curse. And for those of us who are involved in the electricity industry, these are certainly some of the most interesting we have had to live through probably since privatisation 20 years ago.
The Electricity Market Review (EMR) proposals, published last year, set out a potential framework which will shape the future of the industry for at least the next 20 years and recognise the importance of ensuring that the future market framework will be fit for the challenges that the industry – and the country – face in investing in low carbon generation to decarbonise electricity production. But, in looking at the impact of those proposals, whilst we can clearly point at the elements designed to secure decarbonisation, or to ensure security of supply, it is critical that none of us overlook the customer, who needs to be placed at the heart of all these reforms, not least because, whether in the guise of taxpayer or consumer of electricity, and whether domestic, commercial, or industrial, it will be the customer who ultimately will have to pay for delivering the targets Government has signed up to. How can we deliver the best result for customers?
The first question to be clear on is why do we need market reform? It is plain for all to see that the existing framework will not deliver sufficient large scale investment in new low carbon generation on either a size or timetable that will allow us to meet the legally binding Government targets. The simple truth is that if we are to largely decarbonise electricity generation by 2030 then
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we need a market framework that not only rewards those willing to invest but also provides opportunities for energy companies like E.ON to engage customers so that they can play their part in achieving this country’s aims.
Whilst there is no silver bullet, we have a chance as an industry (and as a country) to work together to establish a structure that provides a stable and consistent market which will reward low carbon investment. Only by recognising the extra costs connected with this type of investment and the necessary role that all fuel types and technologies have to play can we confidently begin to make the right investment decisions that will provide for the country and our customers.
Throughout this process there have been many voices and many opinions – some contradictory – about what we as a country need. But I believe it is now pretty much accepted that we must deliver a targeted mechanism to encourage low carbon generation investment if we are to meet the challenge of the trilemma – providing reliable, affordable and low carbon power for decades to come. The Government’s preferred solution is for a Contract for Differences (CfD) and, having worked through the options in the consultation document, we also believe that a CfD is likely to be more effective than a premium FIT (PFIT) in reducing the market risks associated with new low carbon investment, particularly for new nuclear power or CCS-fitted plant. By providing greater certainty for investors with consistent, predetermined payments we can push forward large scale projects while providing a
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