Feb 16 2010
UK Power Sector Market Reform: The Case for Action
By Simon Skillings
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There is emerging consensus over the important early actions that need to be taken if we are to meet our 2050 decarbonisation objectives. In particular, the widespread and urgent deployment of energy efficiency measures and the early decarbonisation of power generation.
Momentum behaviour by market actors is not going to deliver these objectives and change is necessary to kick-start the transition. Indeed, it is likely to directly threaten security of energy supplies as potential investors defer making the necessary investment decisions.
Significant investment risk is an endemic feature of the power sector which can be expected to continue for decades to come and market reform will be critical in changing investor perceptions of the opportunities and risks ahead. It is therefore an essential component in triggering and sustaining power sector decarbonisation. It also has the potential to impact on energy retail markets and could help transform the behaviour and experience of energy consumers.
A new paper by E3G’s Senior Associate Simon Skillings explains why market reform is necessary and how the current arrangements are affecting the behaviour of market participants.
It will not be possible to effectively engage in a process to define the necessary market reforms until the Government develops a clear and credible forward looking narrative for its long term role in the market. There are currently a number of plausible narratives that could be implied by Government policy but each of these would lead to very different requirements for market reform.
The paper sets out three possible narratives: ‘market driven’, ‘resource planning’ and ‘keeping options open’ and explains the market reform agendas that would be required under each situation.
The choices faced by Government are intensely political and this note does not attempt to suggest a recommended way forward. The key objective is to ensure that Government recognises the choices that it will need to make and some of the policy implications that will result.