Energy White Paper

On 12 July 2011 the Government published its White Paper "Planning our electric future: a White Paper for secure, affordable and low-carbon energy" (the White Paper) as the formal Government response to the Electricity Market Reform consultation in December 2010. This article sets out some of the White Paper's key proposals.

The general message that is delivered in the White Paper is that since the 1980s, the existing electricity market worked well. However, due to the unprecedented challenges faced by the market, wide-ranging reforms are required. The main objective of the reforms proposed in the White Paper is, therefore, to "build an electricity system fit for the future" by ensuring future security of electricity supply, decarbonising the supply and minimising the cost to consumers. This is to be achieved by encouraging cost-effective investment, at the pace required to meet the challenges that the market faces.

The Government's strategy is to set up an institutional framework for the administration of long-term contracts for low-carbon energy and capacity. It also proposes to continue the "grandfathering" approach, so that there is no retrospective change to low-carbon policy incentives and to encourage a liquid market in order to enable new entrants to the market to compete on fair terms with existing energy companies.

Contracts for low-carbon generation

In order to promote decarbonisation, the Government is proposing a new system of long-term contracts with low-carbon electricity generators in the form of Feed-in Tariffs with Contracts for Difference (FiT CfD). The aim of these is to provide predictable and stable revenue streams for investors in low-carbon energy generation. Under these agreements, a low-carbon electricity generator receives a top-up payment when it sells electricity for less than the agreed contract price, but makes a repayment to consumers when it sells electricity for more than the agreed contract price. This ensures that the generator receives the agreed tariff (but no more than that).

The White Paper confirms that these contractual arrangements will be supported by the introduction of a Carbon Floor Price (CFP) and the Emissions Performance Standard (EPS). The purpose of the CFP, which was announced in the Budget 2011, is to reduce uncertainty and provide an incentive to investment in low-carbon generation by putting "a fair price" on carbon. The purpose of the EPS, set as an annual limit equivalent to 450g...

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