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Energy Market Reform: Again

Posted in Market Design,UK by Cheryl Morgan on the July 12th, 2011

Today the British government issued a new white paper on energy market reform. I have been on aircraft most of the day (and am now in Finland) so I have missed most of the excitement. Fortunately there are plenty of reports online. Reuters has a summary of what is proposed.

Basically it sounds like the government has come to the conclusion that electricity generators will not build new capacity unless they are given firm guarantees of long term prices (or spot prices are allowed to rise significantly, which is something the government is probably scared of). It all sounds very much like the dear old “dash for gas” of the 1990s. Let’s hope these new contracts don’t end up underwater.

Possibly the most interesting part of the report is this:

The government’s electricity market reform white paper, aimed at introducing reforms to take effect by mid-2013, failed to decide on a capacity mechanism which ensures enough back-up power capacity is available at peak demand times.

The government said it would make a decision on that by the end of the year with two alternatives possible.

Either it will opt for centrally procured capacity that is removed from the energy market or a market-wide mechanism in which providers offering peak capacity will be incentivized.

I foresee a big upsurge in the demand for market analysis.

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