Electricity Market Reform (EMR) White Paper 2011

Planning our electric future: a White Paper for secure, affordable and low-carbon electricity

With a quarter of the UK’s generating capacity shutting down over the next ten years as old coal and nuclear power stations close, more than £110bn in investment is needed to build the equivalent of 20 large power stations and upgrade the grid. In the longer term, by 2050, electricity demand is set to double, as we shift more transport and heating onto the electricity grid. Business as usual is therefore not an option.
Responding to these challenges, on 12 July 2011 the Government published ‘Planning our electric future: a White Paper for secure, affordable and low-carbon electricity’. The White Paper sets out key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables, and carbon capture and storage.
Key elements of the reform package include:

• a Carbon Price Floor (announced in Budget 2011) to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now;
• the introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A contract for difference approach has been chosen over a less cost-effective premium feed-in tariff;
• an Emissions Performance Standard (EPS) set at 450g CO₂/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also to ensure necessary short-term investment in gas can take place; and
• a Capacity Mechanism, including demand response as well as generation, which is needed to ensure future security of electricity supply. We are seeking further views on the type of mechanism required and will report on this around the turn of the year.

Publication of the White Paper marks the first stage of the reform process. The Government intends to legislate for the key elements of this package in the second session of this Parliament, which starts in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so the first low-carbon projects can be supported under its provisions around 2014. The Government will put in place effective transitional arrangements to ensure there is no hiatus in investment while the new system is established.