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Market News

 October 19, 2011
Electricity Market Reforms will not be finalised until early 2013

 Tim Yeo calls on government to "make this a priority and deliver market reform much quicker"

The government's flagship electricity market reforms (EMR) will not be finalised for more than 12 months, prompting calls for the coalition to fast-track legislation that is regarded as critical to efforts to drive £200bn of energy infrastructure investment by the end of the decade.

Responding to a recent report from the Energy and Climate Change Committee of MPs on Ofgem's Retail Market Review, the Department of Energy and Climate Change today reiterated its commitment to delivering its EMR package, insisting the reforms will "deliver clean, secure energy at the lowest possible cost".

However, the response provided no update on the timeline for passing the legislation that will underpin the EMR. The reforms will enable the new subsidy mechanisms for low-carbon energy, introduction of a carbon floor price, changes to the back-up power regime and emissions standard for coal-fired power plants.

According to parliamentary sources, the legislation is likely to feature in the Queen's Speech next May. As a result, it will not receive the required parliamentary time until the autumn of 2012 and is unlikely to gain Royal Assent until early 2013.

Chairman of the Energy and Climate Change Committee Tim Yeo MP issued a statement voicing his concerns over the apparent delay to the flagship energy legislation.

"Electricity market reform is urgently needed to break up the dominance of the Big Six energy companies and set the right long-term framework to reduce the UK's dependence on fossil fuels, which are becoming increasingly expensive," he said.

"I am extremely concerned that the electricity market reform legislation has been delayed until the next session of parliament in the second half of 2012. The government should make this a priority and deliver market reform much quicker."

Sources said the committee is concerned that the uncertainty created by the delay could have a knock-on impact on green investment. Projects are put on hold to see how the EMR package will be enacted and what level of support can be expected from the new subsidy mechanisms.

However, a spokesman for DECC insisted there has been no delay to the EMR legislation, noting that the whitepaper on the proposals released this summer confirmed the current time line for the measures.

The white paper states: "The government intends to legislate for the key elements of this package in the second session of this parliament, which starts in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so the first low-carbon projects can be supported under its provisions around 2014."

It added that the government will put in place "effective transitional arrangements to ensure there is no hiatus in investment while the new system is established".

Yeo's comments are the latest in a series of interventions from the committee criticising the pace and ambition of the government's low-carbon agenda. They also follow a highly critical report earlier this summer which urged ministers to completely rewrite their EMR plans to deliver a more "straightforward and coherent" strategy.

In related news, the government confirmed in its response to the committee that it will remove one potential barrier to entry to the energy market faced by smaller energy firms: it will raise the threshold after which they have to fund energy efficiency schemes.

Under current arrangements, energy companies with more than 50,000 customers have to pay into the Carbon Emissions Reduction Target scheme and Community Energy Saving Programme.

However, DECC said it consulted on raising the threshold to 100,000 customers and has decided that it will increase it to 250,000 customers, meaning that many smaller energy providers will be exempted from paying into the two schemes.

By James Murray