Key elements of the government’s Electricity Market Reform (EMR) programme were questioned this week in evidence to the Energy and Climate Change Select Committee.
Energy minister Charles Hendry came under pressure to say exactly how the counter-party would be set up and risk allocated for contracts for difference (CfDs). He said National Grid would be the “delivery body”, but one operating under a long-term commercial contract with government and not liable if it is breached.
That satisfied few on the committee, who had heard from RWE Npower chief executive Volker Beckers that “last year there was an expectation that CfD is backed by government”, that the Treasury would “sign the cheque”. The switch to a government contract had been “a big shift over the last six to nine months”.
Committee chairman Tim Yeo asked Hendry whether the change was necessary to meet state aid rules. He said there would be “serious alarm politically if some interpretation of EC rules prevents Britain from having the best market structure”.
Eon-UK chief executive Tony Cocker dismissed the carbon price floor as “just a tax” that incentivised nothing other than old nuclear and hydro. He said CfDs and a capacity market were the “two bits of EMR that make a difference” and they should be finalised quickly.
Beckers countered that the case for a capacity market “has not been made yet”. He said the market “eventually signals capacity scarcity”, and a capacity market would delay investment while people waited to assess new proposals.