Electricity Market Reform (EMR) is the biggest reform of the energy market since privatisation. The fact is that we have a pretty steep mountain to climb if we're to attract £200bn of investment in the UK's energy market over the next nine years. That sum is an eye watering amount - almost the same as the annual health, education and defence budgets combined.
The question everyone is asking this week is whether the EMR announcement will do enough to attract the investment we so badly need, but perhaps a better question is whether it will attract the right kind of investment. Because the current market has failed so badly, we need a radical new approach that marries market reform with retail reform that truly delivers for the consumer. Breaking the hold of the Big Six on the retail side is key to this and essential to ensure that consumers get maximum value from the £200bn of investment that we need.
The crisis of funding we now face is symptomatic of how the current market structure has failed the UK. For too long, traditional energy suppliers have been happy to reap the profits of infrastructure sold off by Government during privatisation. Rather than make the right decision, the oligopoly of the Big Six took the easy one - to provide consumers with the illusion of limitless, cheap energy supplies by simply sweating existing assets and completely failing to invest for the future. As a result, we're now more reliant on imported fossil fuels than ever. In recent months we've started to see that illusion shattered, with Scottish Power and British Gas hiking their prices, forcing consumers to pay the price.
More home grown generation that is independent of the Big Six's fossil fuel dependency is key to bringing about lasting change to the market. Speak to any small supplier and they will tell you that the ability to buy power so they can broaden their customer base is their biggest obstacle to growth. That's why Good Energy decided to get round that problem by buying our power from a community of some 2,000 independent renewable generators. For our market as a whole, it's hard to see how a highly complex instrument like a feed-in tariff contract for difference (FIT CfD) will encourage new, smaller generators who exceed the current 5MW FIT cap, to enter the market, and give new suppliers the oxygen they need to grow and make the market more competitive
It's not all bad news, however. One of the biggest concerns we had about the initial proposals published in December was the complete silence on decentralised generation which is, of course, an important way of attracting more independent generators. This week's paper marked some progress in that respect, with the Government now confirming its support for more distributed generation in the reformed market.
There are a wide range of important issues facing decentralised energy at the moment that need to be addressed; planning, finance and community involvement in schemes are just three of those, along with whether a FIT CfD is suitable for encouraging a decentralised approach to generation. Ahead of this week's announcement, we've been pressing the Government to take a broader approach to those issues, so we were pleased to see a commitment to creating a new Ministerial working group to address them.
Overall, this week's package of reforms presents as many questions as it does answers. In the coming weeks, we'll be arguing that the Government needs to take far more holistic approach to what its doing. In some ways, with the first ever small supplier summit last week, it has started to do that. But if it wants to deliver a truly radical approach, which encourages investment through increasing competition, there is still a lot of work to be done.
Juliet Davenport is chief executive at Good Energy
