11 February 2010 | Luca Del Buono
Carbon, Energy, Legislation, Europe

 

As the UK's General Election approaches, both parties agree on at least one thing: the need for energy reform. What is unclear is where reform will begin and how to sustain it.

According to Dieter Helm, Professor of Energy Policy at Oxford University and the UK Government Energy Advisor, the key lies in the government's ability to design a policy the markets can respond to, and incentivises investment.

"There's a silly argument between those who think it's the market or the government. It's never been a question of 'or.' It's been a question of how policy designs the questions which the market is supposed to answer."

Ofgem, Great Britain's electricity and natural gas regulator, released a report that offers its latest suggestions for various reforms to the UK's power.

A summary of Ofgem's 5 key recommendations is as follows:

- Targeted reforms include a minimum carbon price and smart metres in households that encourage efficient energy use.

- Ofgem wants companies to have sufficient back-up gas and a centralised market for renewable energies such as wind. Included in this, there will be fines imposed on companies that undersupply gas or power.

- A stronger commitment for alternate energy sources for the future.

- Set contracts for long-term power such as clean coal, nuclear and renewable energy.

- A centralised energy buyer that will be the coordinate all future power and gas investments.

As is evident, these recommendations range from minor tweaks on the status quo to drastic overhauls. Perhaps the most drastic and controversial overhaul is the suggestion to impose a central energy buyer.

Most analysts current oppose this suggestion. The reason for the opposition is that analysts anticipate difficulty in regulating a central buyer and believe that entitling one central buyer would disallow important decisions to be made in the marketplace.

Helm believes the government should set an amount to invest and allow companies to bid on contracts:

"I wouldn't let the price determine how much investment is going on, I would decide how much investment is going to go on and let the price adjust. This would be a long-term power generation capacity market."

With the General Election upcoming, it will be up to the voters and party leaders to decide how to direct the upcoming energy reform.

Author: Michael Good | Climate Action

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