Abstract
The 2013 Electricity Market Reform (EMR) was a response to the twin problems of securing efficient finance for a new generation of low carbon investments, and delivering reliability along with a growing share of renewables in its energy-only market. Four EMR instruments combined to revolutionize the sector; stimulating unprecedented technological and structural change. Competitive auctions for both firm capacity and renewable energy have seen prices far lower than predicted and the entry of unexpected new technologies. A carbon price floor displaced coal, whose share fell from 46% in 1995 to 7% in 2017, halving CO2. Renewables grew from under 4% in 2008 to 22% by 2017, projected at 30+% by 2020 despite a political ban on onshore wind. Neither the technological nor regulatory transitions are complete, and the results to date highlight other challenges, notably to transmission pricing and locational signals. EMR is a step forwards, not backwards; but it is not the end of the stor
Highlights
This report summarises the evolution of UK electricity policy since 1990 and explains the Electricity Market Reform (EMR) in context: its origins, rationales, characteristics, and results to date
New Electricity Trading Arrangements Non-Fossil Fuel Obligation Office of Gas and Electricity Markets Power Purchase Agreement Pool Purchase Price Panel of Technical Experts (independent advisory committee established under the Electricity Market Reform legislation Photovoltaic Regional Electricity Companies (RECs), established after privatisation Renewables Obligation Certificate Retail Price Index Social Cost of Carbon System Marginal Price Value of Lost Load Weighted Average Cost of Capital
The industry argued that given scale and commitment, it would be able to engineer costs down to £100/MWh by 2020 – a claim greeted with considerable scepticism
Summary
Until 1990, the UK - like many other countries - had an electricity system that was centralised, state-owned, and dominated almost entirely by coal and nuclear power generation. The four instruments of the EMR have combined to revolutionise the sector; they have both drawn on, and helped to spur, a period of unprecedented technological and structural change. Competitive auctions for both firm capacity and renewable energy have seen prices far lower than predicted, with the fixed-price auctions for renewable sources estimated to save over £2bn/yr in the cost of financing the projected renewables investments, compared to the previous support system. New Electricity Trading Arrangements (adopted in 2001) Non-Fossil Fuel Obligation Office of Gas and Electricity Markets Power Purchase Agreement Pool Purchase Price Panel of Technical Experts (independent advisory committee established under the Electricity Market Reform legislation Photovoltaic Regional Electricity Companies (RECs), established after privatisation Renewables Obligation Certificate Retail Price Index Social Cost of Carbon System Marginal Price Value of Lost Load Weighted Average Cost of Capital
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