Developments in the UK
Electricity Market
Dr Aidan Rhodes
Knowledge Exchange Associate,
UK Energy Research Centre
Two organisations
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communities.
Energy Policy Objectives
Environmental - 80% reduction of
CO2 emissions* by 2050 (34% by
2022)
Renewables to supply 20% of EU energy by
2020
10% of road transport to be biofuel by
2020
20% improvement in energy efficiency by
2020
EU Strategic Energy
Technologies Plan (SET-Plan)
2009
UK
Energy Act 2008
Climate Change Act 2008
Security - Maintain reliability of
energy supplies
Economic - Promote competitive
markets
Social - Ensure every home is
adequately heated
*Compared to 1990 levels
Previous UK energy market liberalisation
1989: UK Electricity Act 1989: begins the process of privatising
the UK electricity industry. This was done to make the system
more cost-effective and efficient.
1990: Assets of nationalised Central Electricity Generation Board
broken up into three private companies – two generating
companies and National Grid, who own the transmission
network..
2000: Utilities Act 2000 – Integrates regulation of gas and
electricity markets, prevents distribution network operators from
supplying electricity to customers, and brings in more
comprehensive energy trading rules.
OFFER &
OFGAS
merged
(1990)
Energy
Savings
Trust (1992)
EU FPIII
(1991)
OFGEM
formally
named
(1999)
EU FPIV
(1994)
EU FPV
(1998)
Sizewell B
begins
electricity
generation
(1995)
CO2 emissions from
residential buildings
= 80Mt (1990)
Total OECD (1990)
installed electrical
power plant =
1715GW
Wind power =
2.4GW
Solar = 0.3GW
Carbon Trust
launched
(2001)
Average UK
new vehicle
CO2
emissions =
190g/km
(1997)
Research Council
Energy Programme
launched (2005)
UK Energy
Research
Centre
launched
(2004)
EU FPVI
(2002)
ERP launched
(2005)
Total OECD
installed (2000)
electrical power
plant = 2056GW
PV = 1.1GW
Wind power = 15.3
Chapel Cross
closes (2003)
Bradwell
closes (2002)
TSB
launched
(2007)
Calder Hall
closes (2003)
Total OECD
installed electrical
power (2006)
plant = 2485GW
(1653GW)
PV = 6.23GW
Wind = 64GW
Institutional
landscape
EU FP7
(2007)
Brent crude
$141 per
barrel (2008)
Average UK new
vehicle CO2
emissions =
160g/km (2008)
PV record
set at 46%
efficiency
Global
(2008)
financial
crisis (2009)
UK biofuels =
1% (2007)
Kyoto Protocol
established
(1997)
Energy
Kyoto Protocol
IPCC 4th
Efficiency
report (2007)
comes into force
Commitment UK Energy
(2005)
UK Energy
IPCC
(2002)
White Paper
UK Climate
White Paper
EU ETS phase
report
(2003)
UNFCCC mtg in
Building
(2007)
Renewables
I (2005)
(1995)
Kyoto (1992)
UK windfall tax
regulations
IPCC 3rd report Obligation
Biofuels
UK Biomass
Mandatory
Home
(1997)
tightened
(2001)
directive
(2002)
strategy
energy
condensing
(2006)
(2003)
IPCC 1st
Home Energy
(2007)
efficiency
boilers UK
Fuel Poverty
report
Efficiency
SET plan
act (1995)
(2005)
Strategy
(2001)
An Energy
Scheme (2000)
(2006)
US
Supplier
Climate
Policy for
10% renewable
amendment to
UK Microobligations
Change Levy
Europe
electricity by
clean air act
generation
(1994)
(2001)
(2007)
2010 target
(1990)
strategy (2006)
Energy Act (2004)
US repudiates
(2000)
Office of
Privatisation of
National ClimateKyoto Protocol
UK CHP strategy
Climate Change
UK electricity
(2001)
Change
(2004)
formed (2006)
industry (1990)
Programme
(2000)
UK winter fuel
payments
introduced
(1997)
Technical, social
and economic
Pelamis wave
power
demonstrated in
Portugal (2008)
UK CCS
competition
launched
(2007)
Dash for gas (0-28% of UK electricity capacity)
2nd
Green
Investment
Bank
(2012)
Committee on
Climate Change
(2008)
CO2 emissions
from residential
buildings = 82Mt
(2006)
Hinkley Point
closes (2000)
Brent crude
$9 per barrel
(1999)
Energy
Technologies
Institute
launched
(2006)
Heat and
Energy
Saving
Strategy
(2009)
UK Energy
and
Climate
Change
Acts (2008)
UK RTFO
(2008)
EU ETS
phase II
(2008)
EU car fleet
regulation
(2008)
CFL phase out
(2010)
Copenhagen –
Kyoto II (2010)
UK
Renewable Carbon
reduction
Energy
commitment
Strategy
(2010)
(2009)
EU ETS Phase
III (2013)
EU new
vehicle CO2
emission =
130g/km
(2012)
UK Renewable Heat
Incentive (2011)
Electricity Market
Reform (2011)
Green Deal (2011)
G8 agree 50%
emission
reduction target
(2008)
Years of policy experimentation and innovation
Policy
1990
Dept. Energy
abolished (1992)
Welsh Assembly
2000
(1998)
Scottish
Government (1999)
2002
MAFF – Defra
(2001)
2004
2006
DTI – BERR and
DIUS (2007)
2008
2010
2012
DECC formed
(2008)
Conventional Electricity Value Chain
LargeLarge-scale
Traditional
Generation
Transmission
• TSOs
• GBSOs
Distribution
• DNOs
• Utilities (ESCOs)
Energy
consumers
Other uses
Industry
Transport
Domestic use
Effects of privatisation
Since privatisation, energy prices in the UK have
generally been lower than the rest of Europe.
The system has stimulated considerable innovation
in supply and tariff structures.
Security of supply has remained very high, with few
major incidents.
However, investment has generally shifted towards
low-capital, quick payback schemes such as
CCGTs.
The electric economy
Heat
Electricity
Mobility
The scale of the UK challenge
695 Mt CO2e
International aviation
& shipping*
Transport accounts
for 19% of UK CO2
emissions
UK non-CO2 GHGs
Other CO2
Industry (heat &
industrial processes)
Residential &
Commercial heat
Domestic transport
159 Mt CO2e
Electricity Generation
* bunker fuels basis
2050 objective
Source: Committee on Climate Change
Large amounts of low carbon generation needed
Capacity - today and 2020
By 2020 we see:
Up to 4 new coal
CCS
demonstrators
Up to 2 new
nuclear plants,
with a third by
2022
GW
23 GW new wind
100
90
80
70
60
50
40
Oil
Gas
Coal
Coal CCS
Renewables
Nuclear
30
20
10
2008
2020
A wide range of solutions are needed
11
Electricity Market Reform
Feed-in Tariff – Contract for Difference
Capacity market
The current Renewables Obligation system will be
replaced with a feed-in-tariff with long-term
contracts for difference.
Will provide incentives for adequate capacity to
be available when needed. This includes
generation, demand-side response and storage.
These would allow long-term investment certainty
for low-carbon technologies such as nuclear, CCS
and offshore wind
This market will be aimed principally at avoiding
loss of supply, and will only be opened if the
government believes it will be needed.
Tariffs will be set in 2013 for implementation in
2014. Initially set on cost of generation, with an
aspiration to move to technology-specific and then
technology-neutral auctions in the 2020s.
The system operator, National Grid, has been selected to manage these proposals.
Electricity Market Reform
Emissions performance standard
Strategy and Policy Statement
To reinforce the existing requirement that there
will be no new coal-fired power plants built
without carbon capture and storage. Level set at
450g/kWh.
A new statutory document that outlines the
Government’s strategic priorities in the energy
sector for the next five years, and outlines the split
of responsibilities between Government
departments affected by the energy sector and the
regulator, Ofgem.
Designed to encourage investment towards new
gas plants in the short term, and CCS
installations in the medium/long term.
Distribution and transmission networks
The networks, as natural monopolies, are
regulated using a price control method.
Previously, this followed an RPI-X formula,
which led to cost efficiencies at the expense
of innovation and high investment.
This has changed to a RIIO formula
(Revenue=Incentives+Innovation+Outputs,
which is hoped to stimulate more innovative
efforts on the networks. To further
stimulate innovation, annual competitions
will be run.
The first of these, the Low Carbon Network
Fund, will make £500 million available
between 2010-2015 to trial new network
technologies across the UK.
Feed-in Tariffs
Designed to increase the uptake of micro generation and lowcarbon heating technologies.
Provides a financial incentive to installation, paying the owner
for each unit of generated electricity.
This is funded directly by consumers’ energy bills.
The level has been dropped from 43.3p/kWh to 21p/kWh for
installations completed after 3 March 2012
© Feed-in Tariffs Ltd
The Green Deal
Legal framework to allow energy saving
investment costs to be ‘attached to the property’
and recovered from energy bills
Obligation transfers to the next ‘energy bill payer’
at sale or re-letting
A ‘Golden Rule’ is in place to ensure that the
benefits of installation are greater than the costs.
In conjunction with the new Energy Company
Obligation (ECO).
Renewable Heat Incentive
Similar to Feed-in Tariffs, gives consumers a financial
incentive for installing low-carbon heat sources.
A tariff is paid per unit of renewable heat produced.
Paid for by the Treasury - £680 million available.
Covered technologies include solar thermal, biomass boilers,
ground-source heat pumps and solid waste burning.
Has launched for businesses – domestic launch expected this
year.
Smart Meters Rollout
The UK Government has
plans to roll out gas and
electricity smart meters to
every property in the
country by 2020.
Deployment starts in 2014 – that’s
24,500 meters installed a day!
The meters will have two-way
communication links with energy
suppliers, via a central Data
Communications Company (DCC).
Led by the Department of
Energy and Climate Change
(DECC)
Consumers will be able to see their
energy usage.
This will be over 54 million
smart meters.
Technical specifications to be
published by DECC before the end
of March 2012.
Launched 1st October 2010
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