The Price of Energy – the inevitable rise

15 Jul

It may have passed you by but there’s been an important development in the environmental arena this week. The Electricity Market Reform (EMR) White Paper has been published starting the biggest shake up in the electricity market since privatisation.

Energy Secretary Chris Huhne announced the paper this week explaining that the current electricity market simply isn’t up to the job to meet predicted future demands. With our continuing reliance on fossil fuel imports, we would be exposed to volatile energy prices which we, as private and business consumers, would need to pay for. The EMR therefore aims to protect the UK consumer from price instability as well as ensure security of supply and meet our low-carbon objectives.

The EMR was originally launched in December 2010 but this week the white paper confirms four key elements:

  1. A carbon floor price of £16 per tonne to encourage low carbon technology
  2. Long-term ‘contracts for difference’ promoting low-carbon energy generation and establishment of feed-in tariffs
  3. A contract framework for capacity through either central procurement or a market-wide approach
  4. Emissions standard for all new power plant

Opponents to the proposals suggest that the reforms are over complex and may actually hinder competition in the energy market. For energy suppliers they need certainty in energy markets to allow them to invest in the technology and infrastructure needed to meet carbon reductions. With an industry currently geared to deliver energy at the lowest cost, in order to deliver energy with lower carbon emissions the industry claims they will need support as they will be required to use technology which is not lowest cost.

The Renewable Energy Federation (REF) also suggests there is a significant cost attached to the EMR proposals which could put the Governments low carbon objectives at risk. With energy prices already increasing, the REF indicate that if the EMR does not deliver lower cost energy then a degree of ‘consumer rebellion’ will be expected especially if domestic as well as business consumers find it increasingly difficult to pay for their energy.

The EMR aims to provide certainty in the market which it is claimed will provide cheaper capital leading to lower development costs for new power plant and stable, if not lower, priced energy.  The Energy Secretary claims the EMR is the only way forward. The electricity market in it’s current form will mean energy prices are certain to rise and with demand predicted to double by 2050 there will be a higher risk of black outs. The system needs to change.

The overall aim of the EMR is to make a fundamental shift away from fossil fuel generation and to open the market up to smaller producers. Opponents suggest the EMR is unlikely to achieve either of these, however one thing does seem certain. The price of energy will continue to rise, even with a move towards low carbon technology, and we all face higher and ongoing energy price increases in the future.

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