Electricity Market Reform (EMR) is a major change to UK energy policy designed to deliver the low carbon energy and reliable supplies that the UK needs, while minimising costs to consumers.
The UK needs approximately £110bn of investment in its energy infrastructure over the next decade in order to secure power supplies for the future, and reduce our environmental impact - and to do so in a way that controls the impact on customer bills. New power generation capacity is needed to replace retiring nuclear and fossil-fuelled power stations and to help maintain a secure power supply and the government has come up with this strategy in order to deliver new investment in lower carbon generation.
The two key elements of EMR coming into effect from April 2015
Contracts for Difference (CfD) - payments for low-carbon generators to incentivise development of new projects, operated by the Low Carbon Contracts Company (LCCC)
Capacity Market - payments for generators to ensure capacity on the grid during times of peak demand, operated by the Electricity Settlements Company (ESC)
CfDs will in time replace the existing Renewable Obligation (RO) which closes to new projects in 2017, although the RO will continue past this date to provide support to schemes benefiting from this mechanism
The costs of administering these schemes and the payments to generators are charged to suppliers under the Supplier Obligation and recovered through consumer bills.
This means that from April 2015 we’ll all see one or more extra charges on our electricity bills – domestic and business consumers alike. The table below is a forecast of what these charges are likely to be, based on published and estimated rates released by DECC:
*NBP: National Balancing Point rate
The government estimates that EMR will reduce household electricity bills by 6% per year on average over the period 2014-2030 compared to meeting the UK energy supply objectives using existing policy instruments.
However, all bills will actually increase in real terms compared with pre-April 2015 levels, and between 2016 and 2020 the government expects that EMR will add a further 4-5% to business electricity costs.
The government is seeking to make electricity intensive industries exempt from some of the CfD costs and other indirect costs incurred through energy and climate change policies. Details of which industries will be exempt and to what extent, are still to be finalised as are the mechanisms for any compensation. These are both currently the subject of Government consultations.
Green Element will keep abreast of the likely effects on business’s electricity bills to help you budget for increased charges. Please check our blog or contact us directly for updates.
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