Energy Market Liberalisation: UK Experience and Future - 3e-News
Transcript Energy Market Liberalisation: UK Experience and Future - 3e-News
Energy Market Liberalisation: UK Experience and
Bulgarian Energy Forum, Sofia, 8 October 2013
Head of European Energy Markets
UK Department of Energy and Climate Change
Overview of Presentation
Background on EU energy legislation and objectives for liberalisation
UK experience of liberalisation
Case Study: experience of renewables investment
Electricity Market Reform (EMR) in the UK
EU Legislation on Energy Markets
Three key objectives
Competition between producers/suppliers – main objective in 1990’s
Security of supply – came into sharp focus in 2000’s => legislation on
security of supply (gas and electricity).
Sustainability and Climate Change – now one of the key drivers of
energy policy. Transition to low-carbon economy a political priority =>
2020 targets, 2050 road map.
Energy Market Liberalisation
Competition - To reduce market power of incumbents, encourage
new market entrants => independent system operation (unbundling),
fair third party access to networks.
Independent regulation – To protect consumers’ interests, reduce
political interference in regulatory matters => provide regulatory
certainty for investors.
Market transparency – To improve market functioning and security of
supply => price signals reflect underlying supply and demand,
enables market players to take rational investment and trading
Liberalised Energy Markets
Reform of the UK electricity market has led to competition in production/supply,
lower prices, stability for investors, and a reliable system.
In March 2001, moved from Pool arrangements to a decentralised market – New
Electricity Trading Arrangements (NETA).
Between March 2001 and Oct 2002, wholesale prices fell by around 20%, attributed
to increased competition, high capacity margins and falling fuel prices as well as
introduction of NETA.
Gas market reform has led to liquid and well functioning wholesale gas market with
gas prices de-linked from oil prices.
UK gas production decreasing (imports projected to be >50% of demand by 2020)
but production remains significant and UK seen significant investment in import
infrastructure (3 pipelines and 4 LNG terminals) with capacity of up to 153 bcm/y.
Also, decision that no new subsidy needed for gas storage.
Lessons learned from UK experience
Importance of diversity of energy supplies (types and sources/routes)
and sufficient infrastructure to ensure security of supply.
Need for stable, transparent and predictable regulatory regime to give
investors confidence to invest.
Need for well functioning and integrated energy markets to provide
price signals for trade and investment.
Need for (transitional) support for low-carbon investment but should
be market-based to reduce costs to consumers.
Importance of improvements in energy efficiency.
The UK’s experience of investment in renewables
In 2012 renewables accounted for around 11% of electricity generation. In Q2 2013,
World Energy Council: UK one of just five countries to receive a “AAA” rating for secure,
affordable and environmentally-friendly energy.
Renewables UK estimates the sector supports 270,000 direct and indirect jobs, and by
2020 up to 400,000 direct and immediate supply chain jobs.
Since 2010 over £29 billion has been invested in renewables – potential to support around
30,000 jobs across UK.
UK now rated in the top five for world wide destinations to invest in renewable energy
(Ernst & Young).
UK rated most attractive in world for offshore wind investment.
Addressing the UK’s Future Challenges:
Electricity Market Reform
Challenges ahead for the UK’s electricity market:
Security of Supply - around a fifth of capacity in 2011 to close by end of
decade. Much to be replaced by more relatively inflexible (eg nuclear) and
intermittent generation (eg wind);
Ambitious climate and renewable targets to build a cleaner energy future –
legally binding 80% reduction in greenhouse emissions by 2050 (Climate
Change Act) and 15% of energy from renewable sources by 2020;
Demand for electricity is likely to grow over the next 40 years as UK
increasingly turns to electricity for transport and heat sectors;
Up to £110 billion investment in electricity generation and transmission required
July 2011 - White Paper - “Planning our electric future: a White Paper for
secure, affordable and low-carbon electricity.”
Electricity Market Reform
Feed-in tariffs with contracts for difference (FiT CfDs) - long-term contracts to
provide stable and predictable incentives for companies to invest in low-carbon
electricity generation. They give greater certainty and stability of revenues by
removing exposure to volatile wholesale prices, and protect consumers from
paying for support when electricity prices are high.
Capacity market to provide security of electricity supply, by ensuring sufficient
reliable capacity is available. The first Capacity Market auction will be run in 2014,
subject to state aid approval. Capacity providers successful in this auction will be
required to provide capacity from the winter of 2018-19.
Carbon price floor provides greater certainty and support to the carbon price
faced by the sector, thus giving a credible long-term signal that the Government is
serious about encouraging investment in low-carbon electricity generation now.
Emissions performance standard will provide a regulatory backstop on the
amount of emissions that new fossil fuel power stations are allowed to emit.
Electricity Market Reform
Long-term vision - low-carbon generation to compete fairly on cost,
without financial support and delivering the best deal for the consumer.
However, technologies are at different stages of development, market
failures mean low-carbon generation can’t compete fairly with fossil fuels,
and we may not be able to rely on the market to deliver security of
Therefore EMR is a set of arrangements to take us through this transition,
working with the existing market and maintaining a liberal approach while
addressing market failures.
Interaction of UK and EU direction of travel
UK and EU objectives are identical:
full support for completion of internal market;
transition to low carbon and security of supply at lowest cost to consumers;
active participation by consumers (smart meters, smart grids, demand side
clear information for consumers to aid choice.
High level approaches are compatible:
market-based methods to reduce costs, eg CfDs for low carbon generation;
Capacity Market – designed so that we can exit from it if the underlying market
develops to the point where it is no longer required;
carbon price signal, eg Carbon Price Floor and reform of the EU-ETS;
well functioning wholesale markets to ensure electricity flows follow prices and
market signals where investment is most efficient (implementation of target
increased interconnection to increase security of supply and reduce costs to