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07 November 2014

Energy transition: in the UK too!


The energy transition is a highly topical issue here in France, with the “energy Transition Law” underway. But it is also a process that has been undertaken by several other EU countries. If Germany is constantly quoted as an example – good for some, risky for others – it is however not the only state that initiated big reforms in this area. Thus, the UK approach is also interesting to analyze, as a country that resolutely decided to combine ecological ambitions and economic pragmatism…

The United Kingdom’s electricity sector is facing two major issues: a very high wholesale price compared to other European states (65 €/MWh against 43€ in France and 34€ in Germany), and a very high level of CO2 emissions, the second emitter in the whole EU, with 530 Mt (40% more than France), due to the huge part of thermal power plants in the production mix (67% of total production). But this does not prevent the United Kingdom, challenged by these major constraints, to build a very proactive and efficient policy, reflecting the new Climate and Energy Package 2030 in its own energy strategy through the EMR (Electricity Market reform).

Priority to security of supply…

The country needs first to deal with its short term security of supply. National Grid noted not only the lower margin between the peak demand in cold weather and the available production capacity, but also the major potential uncertainty on the effective available production park in 2018/2019. To avoid this double risk, the DECC and National Grid set up a dual system. On the one hand, to address the immediate reduction of the margins for winter 2014/2015, a double contractual arrangement has been put in place to cope with extreme demand peaks: the DBSR (Demand-Side Balancing Reserve) and SBR (Supplemental Reserve Balancing). Their aim is to increase the spare capacity from 4.1 to 6.1% from the 1st November 2014. Regarding the overall security of the production system, the UK market will be the first to benefit from a capacity market, secured by the auction of an operational capacity volume of 48.6 GW for winter 2018/2019 (on a pre-qualified capacity of 67 GW).

…and to security of long term production.

In this regard the UK adopts a twin-tracked approach: firstly focusing on technologies, following somehow the successful Swedish model of electricity decarbonization, based on the same triptych: Nuclear (targeting 18 GW) / Biomass and bioenergy / Power renewable energies (targeting the very high potential of offshore wind). The whole approach is completed by an active policy on energy efficiency (The Green Deal and the Green Investment Bank) and by large investments in CCS (carbon capture & storage) and storage. Secondly, the financial approach, which reflects the growing awareness of the British Government that a purely “market-based” approach would not be sufficient to secure the extremely high investments that operators will have to engage over very long periods (60 years for nuclear power plants). This has resulted in the establishment, for all technologies without any discrimination, of systematic support schemes based on FIT (Feed-in-Tariffs) and CFD (Contract for Difference), but also on financial public guarantees provided by the state. The nuclear part of the support scheme program has just been approved by the European Commission in early October, after an investigation of nearly a year.
This reveals finally, a convergence of views between the United Kingdom and the European Commission, which also emphasizes environmental requirements and economic pragmatism.

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The Union of the French Electricity Industry is the trade association of the French electricity sector. We bring together companies from the whole value chain of the electricity industry.

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