UK to overhaul electricity trading rules

Sep 30, 2002 02:00 AM

The UK government's eagerly-awaited White Paper on energy policy is set to propose sweeping reforms to the electricity market in England and Wales to safeguard the future of nuclear and renewable energy. Ministers are also likely to sanction major changes to the planned bill to reform the electricity transmission and trading market in Scotland to prevent it falling prey to the same problems that have hit generators south of the border.
The energy review which is currently underway in Whitehall and which will form the basis of the White Paper is due to land on Tony Blair's desk in mid-December. It is expected to recommend the introduction of new market mechanisms to encourage nuclear generators and renewable energy companies to build new capacity, based on greater certainty about long-term electricity prices. This could involve the reintroduction of capacity payments to generators to give them incentives to have plant on stand-by.

The so-called new electricity trading arrangements, Neta, introduced just over a year ago, have been widely blamed for sparking the financial crisis engulfing the country's biggest nuclear generator, British Energy, by bringing down wholesale electricity prices to below its cost of production.
But Neta has also hit the renewable energy sector, which the government is relying on to supply 10 % of the UK's electricity by 2010 and 20 % by 2020. Without a big expansion of renewable energy, Britain has no hope of meeting its Kyoto commitments to cut emissions of greenhouse gases.

Ian Russell, CEO of ScottishPower, said: "The fundamental problem is that Neta does not align with government energy policy and it does not send out the right price signals to encourage the long-term construction of generating plant.”
“Neta is basically a spot market which has worked well for generators with flexible plant. But it has not worked for the renewables sector or for combined heat and power producers or for British Energy. Windfarm developers, for instance, will not build new wind farms because they cannot guarantee that the plant will run and they cannot therefore guarantee making money under Neta."

The White Paper is also expected to address the problem of making sure the national transmission system is upgraded sufficiently to be able to cope with the big increase in renewable energy. Some £ 1.5 bn is due to be spent in the next six years to ensure that renewable plants can link up physically to the grid.
The White Paper may need to contain new powers for the energy regulator Callum McCarthy to ensure this investment goes in. Before the British Energy crisis, the plan was to extend Neta to Scotland through the British electricity transmission and trading arrangements (Betta). A bill paving the way for Betta is scheduled to be introduced in the forthcoming session of Parliament.
But one source said: "Betta, as it is currently designed, is dead in the water. Either there will have to be wholesale changes or it will have to be scrapped altogether." Even with sweeping changes to the electricity market there is no guarantee that British Energy will survive.

The government has increased the company's financial lifeline to £ 650 mm and extended it until the end of November. But Whitehall sources say it is still quite possible that the company will go into administration, in which case the taxpayer will inherit all eight of its nuclear stations in the UK since the government is now the company's senior creditor.

Source: Independent
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