Electricity Market Reform (EMR) and Contracts for Difference (CfDs) (UK)

It is estimated that due to plant closures and the need to replace and upgrade the UK’s electricity infrastructure, over the next decade the UK electricity sector will need around £110 billion of capital investment.

Electricity Market Reform (EMR) is the ground-breaking UK government initiative to make sure the UK remains a leading destination for investment in low-carbon electricity.

The government’s consultation on the detailed implementation of Electricity Market Reform (EMR), alongside key sections of draft secondary legislation to help illustrate policy proposals, concluded 24th December 2013. In addition, the Energy Act, that provides for EMR, was given Royal Assent in 2013.

Information on EMR is here.

The consultation and associated documents set out implementation proposals for the key mechanisms for reform: the Contracts for Difference (CfDs) and Capacity Mechanism, as well as their associated institutional and transitional arrangements. It also sought views on implementation of measures to manage any potential conflicts of interest for National Grid as the EMR delivery body.

Documents on CfD are now published (April 2014) which are the culmination of several successive cycles of drafting and engagement with industry and the wider public, beginning in May 2012 and concluding in January 2014, with those iterations available to review. These include a revised contract, drafting to support phased projects and a narrative document plotting the transition from December 2013.

These documents are here.

The Policy and Drafting Update describes in detail the progress made in the drafting of the contract, including DECC (UK government department) response to feedback received from stakeholders. In particular, it illustrates the DECC approach to facilities with existing capacity under the RO (Renewables Obligation) and to phased projects. The updated CfD draft is intended to be largely representative of the terms to be offered to generators once the CfD regime begins to operate later this year, subject to the inclusion of a number of additional clauses described within the Policy and Drafting Update, including Sustainability and support for Private Wire Networks.

Today (23rd April 2014) also sees the announcement of 8 major new renewable projects.

“The next few years will see auctions introduced for these contracts for difference, to bring competition and market forces to bear on this essential low carbon transition and bring forward up to £110bn of private sector investment. They will see the development of low carbon technologies from tidal to carbon, capture and storage, to compete in a technology-neutral low carbon market in the next decade. They will see a capacity market introduced – both for gas generation replacing coal and for new energy-saving investment.” Per The Guardian