Isra-Mart srl:Policy Exchange calls for simplication of low-carbon energy market

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Isra-Mart srl news:

Centre-right think tank Policy Exchange has today published a major new report urging the government to drastically simplify its energy policy in an attempt to reduce the cost of building low-carbon energy infrastructure.

The report, which has been released just days ahead of the unveiling of the government's long-awaited electricity market reforms on Thursday, argues that uncertainty over the coalition's plans is leading to an increase in the cost of building new energy infrastructure.

It concludes that extra regulatory risk for those seeking to build power stations is likely to add £1.25bn a year to the costs of new investment – equivalent to almost £50 for every household in the UK – and argues that the many different renewable energy support mechanisms is also increasing the cost of low-carbon infrastructure projects.

The report also finds that energy industry investment decisions are being informed by far too many policy measures, including the Renewables Obligation, the Carbon Emission Reduction Target, EU Industrial Emissions Directive, EU Emissions Trading System, the Climate Change Levy and Feed-in tariffs.

"The competitive electricity market in Great Britain has been a major success story, emulated around the world," said report author Simon Less. "But the current road of incremental policy interventions is creating unmanageable uncertainty and gradually replacing market decisions and innovation with government planning. Unless reversed, such an approach will be much less effective in securing electricity supplies and lowering carbon emissions at least cost to customers."

The report's central recommendation is for the government to dispense with differing levels of support for different types of low-carbon energy generation and deploy a "credible, long-term, neutral-carbon pricing framework" that allows the market to determine the most effective mix of energy technologies.

The government is expected to try to simplify its low-carbon energy policy through the reforms to be announced on Thursday with sources suggesting it will look to phase out the renewables obligation scheme and replace it with an advanced form of feed-in tariffs known as contract for difference. It is also expected to introduce a new mechanism for putting a price on carbon designed to drive long-term investment in costly low-carbon projects, such as new nuclear reactors, renewable energy, and carbon capture and storage technologies.

However, the government is unlikely to dispense with differing levels of support for different technologies, which many within the renewable energy industry insist are essential to drive investment in emerging technologies. Such technologies include marine energy systems that are currently more expensive than alternatives, but have the potential to become economically competitive in the future.