The Energy Regulation and Markets Review - Stikeman Elliott

United Kingdom
E.ON and RWE’s interest in the Horizon Nuclear Power JV – which means that E.ON
and RWE are now out of the running to build the UK’s next generation of nuclear power
plants. Several large coal-fired power stations have announced plans to convert to run on
biomass, including Drax, which plans to develop a 426 MW biomass co-firing facility at
the Drax site. Activity in the offshore wind sector has continued with the Barrow, Robin
Rigg and Gunfleet Sands offshore transmission projects all reaching financial close and
the next phase of projects underway.
VII
CONCLUSIONS and OUTLOOK
The market currently faces a good deal of uncertainty. The government is trying to
reconcile three sometimes contradictory objectives, namely decarbonisation, ensuring
energy security and ensuring affordability for consumers. Policy proposals have been
many and far reaching over the past 18 months, but at the current time there is little
detail as to how those policies – and particularly EMR – will be implemented. This
causes uncertainty, which affects investor confidence, already poor as a result of the
financial crisis. A great deal of political capital has been invested in offshore wind and
nuclear generation. Some commentators are beginning to question the economics of
offshore wind, and plans for new nuclear were dealt a blow with the withdrawal of RWE
and E.ON from the nuclear build programme. Significant infrastructure investment is
also required, both to replace existing assets and to develop the system in preparation for
the expected increase in intermittent and geographically remote generation.
What has been notable by its absence during the EMR process has been
consideration of the contribution of natural gas in the future. Given the amount of gasfired
generation already installed, the government’s call for evidence on the future of gas
is to be welcomed, particularly if it opens a debate on how the EMR proposals will affect
the gas market as gas moves from its current role as baseload to providing back up for
intermittent generation in future.
A draft Energy Bill is due in late May, which, hopefully, will clarify many of the
outstanding questions. The sector needs clarity, but it also needs clear investment signals.
The upcoming legislation must be clear and coherent if investors are to be tempted back
into the market.
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