8 Jul 2013
FIM welcomes the recent Electricity Market Reform (EMR) announcements, which confirms the Government’s commitment to renewables and low carbon generation. The announcement outlines how the Contracts for Difference (CfDs) will provide predictable revenue streams that will encourage investment by reducing risks to investors. The Government has three objectives for energy policy - to keep the lights on, to keep energy bills affordable, and to decarbonise energy generation. To achieve these, the Government intends to reform the electricity market. EMR is the biggest change to the electricity market since privatisation and will transform the UK’s electricity sector. The main elements of EMR are Contracts for Difference and the Capacity Market. The objective of the CfDs are to stimulate investment in low-carbon technologies (including renewables, nuclear and carbon capture storage) by providing predictable revenue streams that will encourage investment by reducing risks to investors. A key feature of the CfDs is the strike price, the Government has published the draft strike prices for a range of renewables technologies (including onshore wind generation and solar). The draft strike prices are roughly in line with support under the Renewable Obligation (RO) in the early years with value dropping in later years; uncertainty also remains about market access discounts. The other key difference is the CfDs duration at 15 years is shorter than the RO. The exact terms of the CfDs remain outstanding with a further publication expected next month. However, encouragingly the Government has been working with the industry and some of the clauses have been amended successfully e.g. there will be no refinancing clauses in the CfDs. FIM still believes that the current ROC regime is attractive and allows investors to take advantage of the predicted increase in electricity prices. RenewableUK believe the publication of the draft strike prices for the technologies it represents is an important step in building industry confidence.