The government’s electricity market reform (EMR) proposals, designed to help encourage investment in low carbon energy, passed into law on Friday.
The Department of Energy and Climate Change (DECC) claims that its EMR proposals will attract £100 billion of new investment in the UK’s ageing infrastructure.
The main mechanism that will be used to incentivise renewable installations in the UK is the contracts for difference (CfD) mechanism. Solar PV was named as one of five ‘mature’ technologies that would have to compete for CfD support in auctions against other mature technologies.
Ed Davey, secretary of state for energy and climate change has confirmed that the first CfD allocation is ‘on track to be held in autumn 2014, with government publishing the final CfD allocation round notice in the coming weeks’.
In addition, the government is introducing a Capacity Market which is designed to ensure security of supply in the UK. The government has confirmed that the first Capacity Market auction will be held in December 2014 for winter 2018/19.
The capacity mechanism has been criticised Yoav Zingher, director and co-founder of demand response firm KiWi Power. KiWi Power pays heavy energy users to reduce their usage and sells the slack back to the grid.
“Unfortunately, the rules of the capacity mechanism mean that any demand response that wishes to operate in this period won't be allowed to tender in the main auction this year,” Zingher told Solar Power Portal. “By not being able to compete head on with fossil fuel power stations, demand response may find the market extremely limited since these power stations can receive 15-year contracts. Demand response is only allowed one year by the rules, which is also unfair.
“The impact of this is a higher cost to the consumer, demand response is an extremely economic resource, and if it lowers the market price by just £1 per kW, it'll save consumers £50 million per year. The other impact is a potential crowding out of demand response altogether and a lock-in to expensive and polluting power stations,” said Zingher.
DECC claims that EMR will help reduce household electricity bills by 6% every year compared to existing emission reduction policies.
The solar industry has reacted angrily to the amount of budget that has been made available to solar developers under the CfD mechanism – with £50 million available for the first year.