The proposed EPS will halt the rise of
new unrestricted coal-fired generation. Any nervous CCGT investors, who may be concerned that that the EPS regulations will escalate through time, may be accom- modated by the freezing of EPS rates for existing and new plant, according to the plant’s online date. This proposed reform should achieve its
stated objective – preventing the most car- bon-intensive forms of new generation. In our view, the setting of an emissions limit at a level where coal-fired generation with partial CCS can still be built balances the need to limit emissions against the desire to prove CCS on coal-fired plants.
Targeted capacity payments to
flexible plants In order to cover for intermittent wind out- put targeted capacity payments would be made to flexible plants. Similar capacity payment systems are already in use in elec- tricity markets around the world with vari- ous frameworks for setting payment levels and ensuring capacity. In this case, the sug- gested option is for a central body to con- tract for capacity to cover any expected market shortfall via periodic tenders. One effect of this proposal would be to extend the capacity now available under the exist- ing short-term operating reserve.
The splitting of the market into con-
tracted and un-contracted plants, and the differing values placed on capacity provid- ed by these groups, will hinder the opera- tion of ordinary market forces. The introduction of contracts for some
peaking capacity will remove the need for such plants to rely on peak prices to drive commercial viability, with a risk that this leads to the depression of wholesale energy prices. Given the potential effect on peak prices, there is a risk that by not paying capacity prices to existing plants that are not contracted for system sup- port, too much un-contracted capacity will close as a result. This would either threaten security of supply or force the contracted part of the market to expand to fill the gap.
Deloitte 2 New Street Square London EC4A 3BZ, UK
www.deloitte.co.uk
Robin Cohen, t: +44 (0)20 7007 1824 e:
robincohen@deloitte.co.uk Neil Cornelius, t: +44 (0)20 7007 7546 e:
ncornelius@deloitte.co.uk
THE RENEWABLES SHOW IN THE ENERGY CITY
11th year
All-Energy 2011 – the UK’s largest renewable energy exhibition and conference – looks forward to welcoming you as an exhibitor or visitor. More than 7,000 people from 55 countries attended All-Energy 2010 with its 450+ exhibiting companies from 16 countries and more than 270 conference speakers.
Regularly updated information on all aspects of the show at:
www.all-energy.co.uk ABERDEEN 18/19 MAY 2011
Energy World April 2011
The major exhibition features technology across the full range of renewable energy devices; and the free-to-attend conference looks at issues and challenges facing the industry and at renewable energy sources from multi-million pound offshore projects to microgeneration.
Networking opportunities abound. BE THERE! 25
A new centralised body We believe that under the government’s new proposals for electricity market reform there is a substantial need for a new cen- tralised body to offer capacity payments, to co-ordinate contract-for-difference auc- tions and to generally take charge of the power sector. The challenges for government remain
considerable, but for investors and providers it is likely that significant risks for market players will also remain – not least because the government has yet to fully acknowledge the logical consequences of its own proposals.
*To read other briefings, visit
www.energyinst.org/DeloitteEnergy Briefings
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