UK acts to encourage investment in power generation

20 December 2013

The UK Energy Bill designed to help unlock the "up to £110 billion" of private investment estimated to be needed to replace current generating capacity in the UK and upgrade the grid by 2020 has finally become law, with the final step, receipt of "Royal Assent", achieved on 18 December 2013.
Now called the Energy Act, it, says the government, will "establish a legislative framework for delivering secure, affordable and low carbon energy", in particular a package of measures collectively known as Electricity Market Reform (EMR). These include:
¦ Contracts for difference (CfD): long-term contracts to provide stable and predictable incentives for companies to invest in low-carbon generation.
¦ Capacity market: to ensure the security of electricity supply including provisions to allow electricity demand reduction to be delivered.
¦ Investment contracts: long-term contracts to enable early investment in advance of the CFD regime coming into force in 2014.
¦ Access to markets: this includes power purchase agreements to ensure the availability of long-term contracts for independent renewable generators, and liquidity measures to enable the government to take action to improve the liquidity of the electricity market, should it prove necessary.
¦ Transition arrangements for investments under the old Renewables Obligation scheme. And
¦ Emissions Performance Standards (EPS): to limit carbon dioxide emissions from new fossil fuel power stations (see separate item below).
The government says the Energy Act will provide investors and industry with the confidence they need to invest in the energy sector and also places a legal obligation on British governments to ensure the UK's energy generating capacity is maintained while at the same time reducing emissions.
The Energy Act enables the Secretary of State to set a 2030 decarbonisation target range for the electricity sector in "secondary" legislation. A decision to exercise this power will be taken once the Committee on Climate Change has provided advice on the level of the 5th Carbon Budget, which covers the period 2028-32, and when the government has set this budget, due to take place in 2016.
Passage of the Energy Act was accompanied by publication of what is called the Electricity Market Reform Delivery Plan ( This sets out the "strike prices" for renewables under the contracts for difference regime as well as the analysis underpinning these decisions.
In line with new EU guidelines on competition and "to deliver best value for money to the taxpayer", the government says it is considering introducing competition for more established low carbon technologies when the CfD regime is introduced. This will be decided in early 2014.
Meanwhile, under a scheme (FID Enabling for Renewables) designed to allow early movers to make final investment decisions prior to full establishment of the new CfD regime the following projects have been deemed "provisionally affordable" within existing support budgets: Beinn Mhor onshore wind farm; Burbo Bank offshore wind farm; Drax 3 and 1 conversion to biomass; Dudgeon offshore wind; Heckington Fen onshore wind; Hornsea offshore wind; Lynemouth conversion to biomass; Teesside dedicated biomass with CHP; and Walney Extension offshore wind..
Noticeably absent from this list is the project to convert Eggborough 1-3 to biomass, which was listed previously.


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