News story

Radical reforms to electricity market pass into law

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

Government reforms to stimulate low carbon energy investment and keep the lights on have passed into law.

Today the government’s reforms to stimulate low carbon energy investment and keep the lights on have passed into law.. The Secretary of State has confirmed that:

  • The government’s delivery partners for the reformed market - National Grid, the Low Carbon Contracts Company, and the Electricity Settlements Company - have been given powers to go ahead and implement the reforms
  • The first Capacity Market auction will be held in December 2014 for the winter of 2018/19, helping to ensure the lights don’t go out when demand for electricity is high
  • The first allocation of Contracts for Difference is on track to be held in Autumn 2014, with government publishing the final Contract for Difference and Allocation Round notice in the coming weeks

This is a major milestone that ensures investors have the certainty they need under the new system. It comes after another vote of confidence, when the European Commission granted State Aid approval for the Capacity Market and Contracts for Difference on 23 July 2014.

The reforms make the UK one of the most attractive places to invest in energy globally, supporting economic growth and creating jobs. Up to a further £100 billion of investment in the energy sector could be needed through to 2020 with the potential to support up to 250,000 jobs in low carbon electricity.

The new system is designed to bring more competition and encourage private sector investment in electricity generation, by providing long-term Contracts for Difference, which reduce risk for investors; and by introducing a Capacity Market to ensure security of supply.

These reforms will enable the UK to develop a clean, diverse and competitive mix of electricity generation, and will be a better deal for the consumer. Household electricity bills are estimated to be 6% (£41) lower on average every year up to 2030 than reducing emissions through existing policies.

Notes to editors

  1. As well as the EMR regulations coming into force, , the window for developers to submit Supply Chain Plans for the CFD is now open. The pre-qualification process for generators wishing to participate in the Capacity Market opens on 4 August.
  2. The delivery partners, the Low Carbon Contracts Company, and the Electricity Settlements Company, are now fully operational. National Grid, as the system operator, now has its powers as EMR Delivery Body, and will administer the Capacity Market and allocate CFDs. The Low Carbon Contracts Company is a Government-owned company responsible for signing and managing CFD contracts with generators and managing payments through the CFD Supplier Obligation. The Electricity Settlements Company is responsible for making capacity payments under the Capacity Market.
  3. 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 allows for the delivery of EMR, with the first CFD and Capacity Market auctions due before the end of the year.
  4. 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.
  5. Government will shortly be publishing the final CFD contract and Allocation Round notice, and the first CFD auction is therefore on track to be held at the end of 2014.
  6. 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.
  7. For further information about EMR, please see the EMR page.