'Balanced' UK Regulator Gives Support to Clean Heat and Power Generation in Free and Open Market

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Researched by Richard Finlayson, International Correspondent, Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). When applying the terms 'deregulation' and 'reform' to the electricity generation industry of many countries, these terms must be qualified by other terms that convey that the policy of de-regulation/reform has gone into reverse, is surrounded by chaos and drama, was badly planned and implemented in a piecemeal fashion, is only being paid lip service by vested interests, or is just a glimmering bulb on a far horizon.

So, it gave something of a jolt to read the IEA's view that the...UK's pioneering role in the electricity market reform has allowed it to reap the benefits of free and open markets. Retail prices have dropped 30% in real terms since 1990 and the market is truly competitive, with 38 rival companies vying for business at wholesale and retail levels. Over 100,000 customers now switch suppliers each week. Introduction of the NETA trading rules should further improve the market and has already achieved the goal of substantially reducing electricity prices."

Under NETA most of the UK's electricity is traded through bilateral contracts ahead of time. Electricity is also traded on forward and futures markets and through power exchanges.

The UK Office of Gas and Electricity Markets (OFGEM) reports that prior to NETA going live in March 2001, the centralized, inflexible arrangements for setting wholesale electricity prices meant that prices failed to reflect failing costs and increased competition. NETA, OFGEM says, is a fully competitive market in which supply and demand determine prices. This is important as wholesale electricity prices make up almost half of domestic electricity customers' bills.

The UK industry serves a total population of around 60 million. In 2000, the electrical generation capacity of the national system was 72.4 GW (79.8 thermal, 17.9% nuclear, 2.0 hydro, 0.2 other). Electricity generation was 355.8 billion kWh and consumption was 345.0 billion kWh.
Ofgem is also proactive in its approach to the GHG (green house gas) and clean energy dimension having just launched a database for the new Combined Heat and Power Climate Change Levy exemption certificates, which form a part of the UK energy generation scene in the new century. In 2002, the UK government announced that electricity generated by 'good quality' combined heat and power (CHP) stations would be classified as exempt from the Climate Change Levy. Under the scheme, CHP Levy Exemption certificates (CHP LECS) are issued to CHP generators for their output each month.

The certificates are issued in respect of CHP station electricity output and can be used by suppliers to business end consumers. These customers will then avoid paying the levy.

The exemption, which took effect from April 2003, is supported by the CHP Information Management System (CIMS) that allows generators and suppliers to view and manage their accounts on-line. Only account holders, such as generators will be able to view any details on the system.

The UK is legally bound to reduce its GHG emissions by 12.5% compared to 1990 levels for the 2008-2012 - period and a domestic goal to reduce CO2 emissions to 20% below 1990 level by 2010. Under EESoP (Energy Efficiency Standards of Performance Program), running from 1994 to 2000, it was estimated that the program resulted in lifetime savings of 2.3 million tons of CO2, 80.8 thousand tons of SO2, and 27.9 thousand tons of NOx. The government and the industry are serious about emissions curtailment with very significant amounts of cash designated to support programs.

According to Department of Trade and Industry figures, in 2001, UK renewable energy sources generated 2.6% of the UK's total, which was made up of: biofuels and wastes 85.6%; large scale hydro 10.7%; wind 2.7% small scale hydro 0.6% geothermal, and solar 0.4%.

Although tracing a way through the regulations and plans can lead to attacks of acronymonia and officialesity it is worth the trip as, in fact, they represent a dynamic and free system that continues to re-invent and refine itself. (which means that they are already ahead of the curve relative to the latest business school truisms).

Ofgem's gas and electricity suppliers deal with over 15,000 domestic wholesale customers and have energy saving targets that must be achieved between 2002-2005 by installing energy efficiency measures in homes. Suppliers can contract out of the work, do it themselves or enter collaborative arrangements. Suppliers submit schemes for Ofgem approval, but can begin work in the month before submission, at their own risk. "Before' must denote the existence of a radically progressive, oxymoronic bureaucracy.

A system that acknowledges that electricity cannot be stored (all un-reconstructed energy traders please note) and has to be kept in balance on a second-by-second basis by the National Grid Company (NGC). The company operates a balancing mechanism to ensure system security (integrity). About 2% of electricity is bought and sold by NGC in this mechanism.

A good number of US, European and other foreign players enjoy the benefits of trading operations in the UK electrical generation industry environment.

Before 'getting back to basics' it might make them think.