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