The first article in the three part series by Stella Farrington, entitled 'EMR heralds greater government intervention in UK power', focuses on UK Electricity Market Reform (EMR), which is set to come into effect in July. Peter Willis commented on the reforms, which will introduce a level of government intervention not seen in the UK's power market since the early 1990s and have the potential to impact energy suppliers both in the UK and in Europe.
An excerpt from the original article follows:
"Any sort of government intervention will inevitably distort markets," notes Peter Willis, a partner at London-based law firm Bird & Bird. "One of the concerns about EMR is that it creates an artificial market for renewables and base-load [power] through the CFD mechanism and another artificial market for peaking plant through the capacity mechanism, with the risk that the free market is squeezed into an ever-shrinking band in the middle."
The success of EMR hinges on the UK government getting the level of financial support just right, say market participants. If there is insufficient support, not enough new capacity will be built. But if there is too much support, EMR could prove unduly costly to consumers and might also fall foul of European Commission (EC) rules on state aid, which usually prohibit selective government support for industry, except in specific circumstances. "If artificial mechanisms are being introduced [by EMR], the EC will want to see minimal distortion of the EU energy market and as much scope as possible for market forces," says Willis.
Energy Risk magazine subscribers can read the article in full at: http://www.risk.net/energy-risk/feature/2320799/emr-heralds-greater-government-intervention-in-uk-power
Bird & Bird is exploring the legal and regulatory implications of intervention in capacity markets and other interventions in energy markets in a conference to be held in Brussels on 4 February 2014. 23 leading speakers from the European Commission, national regulators, energy companies, economists and Bird & Bird will explore the issues. For more info, click here