DG publishes part of Review of Energy Sources for Power Stations.

Apr 10, 1998 02:00 AM

In the UK the Director General of Electricity Supply, Professor Littlechild, has published his submission to the Government's Review of Energy Sources for Power Stations.
The main conclusions are:
- There are significant problems of incumbent market power in generation and supply. New entry is essential for the continued growth of competition in generation and to drive down prices to customers. Restricting entry would be likely to lead to higher prices than otherwise, including by enabling existing generators to raise or maintain prices.
- A stable coal burn over the next few years should be attainable by competitive coal and coal generators, without a need for restrictions on consents for new independent capacity. If coal-fired generators are able to purchase coal at fully competitive prices, and price competitively themselves, there is scope for them to defend market share against new entrant gas stations more vigorously than they have done in the past.
- Calculations suggestthat if all Section 36 consents presently granted were to proceed, and further applications by independents granted, the market share of gas would be held to about 50 % of the total market, and coal burn could stabilise at about 18 million tonnes for the next few years.
- Price controls on generation or the Pool would distort the structure of prices. Some market participants would suffer financial damage. There would be a loss of confidence. There would be less scope for competition in supply. The benefits of opening the market from 1998 would be reduced. The prospects for benefits from Pool reform would be reduced.
- New entry in generation in Scotland has been constrained by the dominant position and vertical integration of ScottishPower and Hydro-Electric, the long term contract for the sale of nuclear output to them, and the absence of an equivalent to the Pool. A few competitors are now trying to enter. As in England and Wales, refusing further Section 36 consents to entrants would have a detrimental impact on competition, prices and investment in Scotland. Price regulation of the Scottish generation market would need to continue for the long term. If new entry is prevented in England and Wales, leading to higher prices there than would otherwise obtain, these will be reflected in Scotland also.
- The UK has taken the lead in Europe pressing for the opening of the energy markets to competition. It is increasingly respected for its achievements in this area. A reversal of policy, to introduce government restrictions on competition and controls on market prices, would be difficult to reconcile with this stance.

Professor Littlechild said: "Promoting increased competition in the UK coal and electricity generation industries, including by granting consents to independents for new gas-fired power stations, is consistent with maintaining pressure to reduce electricity prices to customers, a diverse mix of fuel supplies and a stable level of coal burn. It is also consistent with proposed environmental limits and does not pose problems of security of supply. Such a policy seems consistent with the Government's aim of diverse and sustainable energy supplies at competitive prices."

On 22 December 1997, the President of the Board of Trade, Mrs Margaret Beckett, published the terms of reference for the Government's Review of Energy Sources for Power Stations. The Review is intended to look at medium and longer- term scenarios for the development of generating capacity and sources of fuel supply.

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