Current Key Electricity Issues

The UK electricity market has been held under a microscope somewhat in the past couple of years as policymakers attempt to plan for the adjustments needed to ensure future energy security.

Among the most pressing of these - in the eyes of the UK Government at least - is the challenge presented by increasing the proportion of renewables within the energy mix, which presents hurdles to be overcome in energy storage, capacity and infrastructure planning.

In the UK alone £110 billion will be needed within the next decade to replace power stations set to be decommissioned and bring about the changes needed to help the country meet its carbon reduction goals, while ensuring energy security.

To this end, the Government released its Electricity Market Reform (EMR) proposals, which were created to "develop and deliver a new market framework that will enable the cost effective delivery of secure supplies of low-carbon energy".

The reforms centre around four different policy instruments; introducing a carbon floor price to provide long-term price certainty for polluting plants, long-term contracts for low-carbon energy generation, additional payments to encourage the construction of reserve plants or demand reduction measures and a limit on the level of CO2 plants can emit.

However, not all are convinced these reforms will bring about the level of investment needed. In its response to the proposals, the Energy and Climate Change Committee said the reforms were overly complex and did not provide a suitable level of certainty for investors.

MP Tim Yeo, chair of the committee, added that the government is keen to ensure it does not appear like it is subsidising nuclear power, which it pledged not to do, although long-term contracts and carbon price are believed by some to benefit nuclear generators.

The committee concluded a fundamental reform must take place to break up the Big Six providers to boost liquidity within the market. The long-term contracts proposed were said to be only useful for nuclear, while other ones must be devised for renewables.

It also said it was too early to consider devising a capacity mechanism, given the development taking place in the field of smart meters, interconnectors and storage systems.

"The government must go back to the drawing board and come up with a more straightforward and coherent set of plans to reform the electricity market," Mr Yeo concluded.

And it's not just the EMR which has left the business community in doubt as to whether the amount of funding needed to create the low-carbon infrastructure will be found.

According to Risky Business: Investing in the UK's Low-Carbon Infrastructure, the report from the Confederation of British Industry, the EMR is a "positive start" but more needs to be done.

Katja Hall, chief policy director for the CBI, said: "It is particularly important that the planning system delivers timely decisions and there are no more sudden policy shifts as we saw with the Carbon Reduction Commitment."

The transformation taking place within the electricity market is by no means concentrated in the UK either.

Next year, the European Network of Transmission System Operators for Electricity (ENTSO-E) is set to publish its Ten-Year Network Development Plan (TYNDP), which addresses how the continent will progress as energy policy alters.

In the coming years, pressure will be placed on the electricity grid from a number of different sources, with seven main clusters identified as needing attention. In both the northern and southern regions of Europe huge integration of renewables is taking place, bringing with it the need for greater transmission infrastructure and interconnection capacity.

Power flows in various regions will bring about fluctuations in exchange capacity, reinforcements will be needed in the supply of various European cities and the Baltic States are also likely to require investment as they become more integrated.

The TYNDP must address these, while also meeting increasingly stringent European energy policies, which intend to cut CO2 emissions on the continent by 20 per cent by the year 2020.

In its scenario, net generating and load capacity will both increase "moderately" between 2010 and 2025, by 2020 around 25.5 per cent of power demand will be met by renewable sources and generation adequacy should be maintained throughout the period.

The report added: "In any case, large grid investments must be undertaken at a quicker pace than during the last years so as to achieve the contemplated EU 2020 targets."

But devising a long-term transmission plan during a time of such upheaval has its obvious drawbacks.

One year ago there would have been few who predicted Germany would be doing a complete about turn on nuclear power, vowing to close all its nuclear plants by 2022 and removing almost a quarter of the country's electricity supply.

Indeed, the uncertainty about nuclear power is part of what has led the International Energy Agency to speculate the world is now entering a new golden age of gas.

Lower gas prices, brought on by an adequate supply of gas, policies in China to promote the use of gas and the fall of nuclear power are expected to increase demand for the fossil fuel by more than 50 per cent from 2010 levels.

Nobuo Tanaka, executive director of the IEA, said "remarkable developments" have been seen in the market over recent months, which will see the fuel take on a more prominent role in the future.

Members of the industry seem to share this sentiment, with GE ploughing funds into gas-powered generation facilities in a bid to be ahead of the curve.

Speaking to the Financial Times, vice-chairman of GE's energy business, said: "It's not that we don't like renewables or nuclear: they are there for the long haul. But there has been a step change in the gas opportunity for power generation that makes it extremely competitive against other forms of power."

Gas also presents a good back up option for when renewable sources are not generating power, a point raised by GE's Steve Bolze, chief executive of power and water division, in an interview with the Guardian recently.

Such assertions mean all the above issues are likely to remain key topics of conversation for the electricity sector for some time to come.