Government needs to back Electricity Market Reform
In 1951 the first grid-connected wind turbine to operate in the UK was first connected in the Orkney Islands, since which the UK has gone on to become a world-leader in renewable energy. The diversity and dynamism of the industry has enabled exponential growth coupled with plummeting costs and significant efficiencies across the sector, supported by substantial investments from existing companies and new entrants to the UK energy market. Investments which will need to continue if, as the government suggests, 95GW of new electricity generating capacity will need to be installed over the next two decades with the majority of this capacity provided by renewable and low carbon sources. The UK has consistently proven itself to be an attractive place to invest in renewable energy however with the size of projects growing and the increasingly innovative nature of technology being used the need for transparency, policy stability and a clear route-to-market hasn’t been greater.
However, there is a cost associated with such a scale of investment, one which is born by consumers and tax-payers and was recently assessed by the National Audit Office. We agreed with many of the sentiments of the report, particularly those relating to the management and transparency of the Levy Control Framework budget. The report additionally highlighted that the CfD framework currently extends for fewer than five years and has only ever covered eight years ahead, echoing industry’s concerns that there is no clear timetable of future allocation rounds or potential budget availability. This will inevitably increase risk for developers which will impact the price at which new projects can be delivered and the associated trickle down to impact on consumer bills.
Since committing to the Committee on Climate Change’s Fifth Carbon Budget the Government has commenced work on the Emissions Reduction Plan. This plan is the opportunity to set out the future energy strategy for the UK with a clear articulation of the future of renewables and of the decarbonisation of both heat and transport. With regards to renewables we consider that there is a great opportunity for the government to provide a stable, transparent and far-sighted plan based around the existing CfD strategy which we view as the best existing route to market for new build, low carbon generation. Well-forecasted demand for renewables and a long-term visibility of the Levy Control Framework will provide a clear basis on which companies can invest.
The wider use of mature technology and the support for emergent technologies provided by the CfD regime is good for the industry and good for consumers. In order to support this continued investment we hope that the government will establish the clear, stable and long-term framework required. Furthermore, we believe that there is a clear opportunity for the government to implement subsidy-free CfDs to provide a secure, stable route to market for mature low-carbon technologies.