In parallel with yesterday's Budget, HM Treasury and the Department of Energy & Climate Change published the results of their Energy Market Assessment announced in November's Pre-Budget Report. This follows the publication last month of a consultation paper setting out the results of Ofgem's Project Discovery and the publication last week of the Conservative Party's Energy Policy. It confirms that, in the Government's view, a consensus has now emerged that there is a need for energy market reform to meet the policy goals of reducing carbon from electricity generation and ensuring security of supply.

The extent and detail of the likely changes are still not clear, but the Government has concluded that a minimum carbon price guarantee alone is unlikely to be sufficient to deliver the investment needed over the longer-term and that the risks presented by a single buyer model outweigh the benefits. The Government's current assessment is that the choice is likely to be between the following options:

  • Supporting low-carbon generation in the current market
  • Regulating to limit investment in higher-carbon forms of generation
  • Establishing a separate low-carbon market

Key differences between the Government's and the Conservative Party's positions on energy market reform are the Conservative Party's proposals to reform Ofgem and the Infrastructure Planning Commission and to replace the Renewables Obligation with a Feed-In Tariff for Round 3 offshore wind farm projects.

The Government has committed to consult on proposals for long-term reform this autumn, with a White Paper due by Spring 2011. Shorter-term proposals would be subject to a consultation this summer and it seems likely that these will include action on the carbon price. The Conservative Party has not yet set out an equivalent timetable.

The Budget also contains a number of other measures aimed at securing low-carbon growth, including the establishment of a Green Investment Bank with a mandate to invest in low-carbon growth.

Further information

  • To view the Budget Report and the Energy Market Assessment, please click here
  • To view the Conservative Party's Energy Policy, please click here
  • To view Ofgem's Project Discovery consultation, please click here

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/03/2010.