News story

Encouraging investment in our electricity system

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Today the Government’s overhaul of the electricity market pushes forward, with secondary legislation for the Electricity Market Reform (EMR) programme laid in Parliament.

Today the Government’s overhaul of the electricity market pushes forward, with secondary legislation for the Electricity Market Reform (EMR) programme laid in Parliament. This major milestone means the programme is one step closer to being passed into law, giving industry the certainty they need to invest under the new system.

Reforming the system will encourage private sector investment in low-carbon electricity generation, and help to keep the lights on at the least cost to consumers. Household electricity bills are estimated to be 6% (£41) lower on average every year up to 2030 under EMR compared to reducing emissions through existing policies.

Two new mechanisms are being introduced to incentivise this much needed investment in our energy infrastructure:

  • Contracts for Difference (CfDs) provide long-term price certainty to low-carbon projects, reducing risk for investors. This means capital costs are lower and in turn, costs to consumers are lower.
  • The Capacity Market provides a regular payment to reliable forms of energy generation, in return for generating capacity being made available when the system is tight.

The new arrangements will further strengthen the UK’s position as one of the most attractive places to invest in energy globally, supporting economic growth and job creation. EMR will help to bring forward an estimated £100 billion of further investment in the energy sector through to 2020, with the potential to support up to 250,000 jobs in low carbon electricity. The reforms are already starting to deliver this investment, with up to £12 billion of private sector investment to be provided as a result of the early contracts that were awarded to renewable electricity projects in April. Further investment will come forward when the first CfDs under the new system are allocated, and the first Capacity Market auction is run, later this year.

Achieving the reforms will enable the UK to develop a clean, diverse and competitive mix of electricity generation – ensuring that the lights will stay on and we have secure, low carbon energy for years to come.

Notes to Editors

  • The Government took powers to implement the reforms through the Energy Act 2013, which became law in December last year. Approval of the secondary legislation will allow for the delivery of EMR, with the first CFD allocation and capacity auction due before the end of the year.
  • As well as the secondary legislation laid in Parliament for scrutiny, the Government is also publishing a number of documents which will provide detail on the reforms to industry and stakeholders. This includes five Government responses to EMR consultations; an updated CFD Allocation Framework, which sets out the technical rules and procedures which will apply in the first CFD allocation round; and Implementing Electricity Market Reform, a document which provides a comprehensive overview of the reforms as the legislation comes into force.