eprintid: 10049007 rev_number: 25 eprint_status: archive userid: 608 dir: disk0/10/04/90/07 datestamp: 2018-05-25 15:25:04 lastmod: 2021-10-10 22:28:09 status_changed: 2018-05-25 15:25:04 type: working_paper metadata_visibility: show creators_name: Grubb, M creators_name: Newbery, D title: UK Electricity Market Reform and the Energy Transition: Emerging Lessons ispublished: pub divisions: UCL divisions: B04 divisions: C04 divisions: F34 note: This version is the version of record. For information on re-use, please refer to the publisher’s terms and conditions. abstract: Until 1990, the UK - like many other countries - had an electricity system that was centralised, state-owned, and dominated almost entirely by coal and nuclear power generation. The privatisation of the system that year and its creation of a competitive electricity market attracted global interest, helping to set a path which many have followed. Two decades later, however, the UK government embarked on a radical reform which some critics described as a return to central planning. The UK's Electricity Market Reform (EMR), enacted in 2013, has correspondingly been a topic of intense debate and global interest in the motivations, components, and consequences. This report summarises the evolution of UK electricity policy since 1990 and explains the EMR in context: its origins, rationales, characteristics, and results to date. We explain why the EMR is a consequence of fundamental and growing problems with the form of liberalisation adopted, particularly after 2000, combined with the growing imperative to maintain system security and cut CO2 emissions, whilst delivering affordable electricity prices. The fifteen years after privatisation, coinciding with the era of low fossil fuel prices, had seen mostly falling electricity bills; from about 2004 they started to rise sharply, for multiple reasons including increasing fossil fuel prices, the need for new investment in both generation and transmission, and inefficient renewables policies. The four instruments of the EMR have indeed combined to revolutionise the sector; they have also both drawn on, and helped to spur, a period of unprecedented technological and structural change. Competitive auctions for both firm capacity and renewable energy have seen prices far lower than predicted, with the fixed-price auctions for renewable sources estimated to save over £2bn/yr in the cost of financing the projected renewables investments, compared to the previous support system. A minimum carbon price level has brought cleaner gas to the fore, displacing coal. Electricity prices may have peaked from 2015, with energy efficiency helping to lower overall consumer bills. New forms of generation have expanded rapidly at all scales of the system. Renewable electricity in particular has grown from under 5% of generation in 2010, to almost 25% by 2016, and is projected to reach over 30% by 2020 despite a political de-facto ban on the cheapest bulk renewable, of onshore wind energy. The environmental consequences overall have been dramatic: coal generation has shrunk from about 2/3rd of generation in 1990, to 35% in 2000, to 10% in 2016, halving CO2 emissions from power generation over the quarter century. Neither the technological nor regulatory transitions are complete, and the results to date highlight other challenges. The Capacity Mechanism has proved ill-suited to encouraging demand-side response, and in combination with the growing share of renewables, has underlined problems in transmission pricing. As the share of variable renewables grows further, the associated contracts will require reform to improve siting efficiency and avoid adverse impacts on the wholesale market. The results to date show that EMR is a step forwards, not backwards; but it is not the end of the story. date: 2018-03-01 date_type: published publisher: MIT Center for Energy and Environmental Policy Research (CEEPR) official_url: http://ceepr.mit.edu/publications/working-papers#2018 oa_status: green full_text_type: pub language: eng primo: open primo_central: open_green article_type_text: Article verified: verified_manual elements_id: 1552729 lyricists_name: Grubb, Michael lyricists_id: MGRUB72 actors_name: Grubb, Michael actors_id: MGRUB72 actors_role: owner full_text_status: public series: CEEPR Working Papers publication: MIT - CEEPR Working Paper 2018-004 number: 2018-004 place_of_pub: Cambridge, MA, USA pages: 44 citation: Grubb, M; Newbery, D; (2018) UK Electricity Market Reform and the Energy Transition: Emerging Lessons. (CEEPR Working Papers 2018-004). MIT Center for Energy and Environmental Policy Research (CEEPR): Cambridge, MA, USA. Green open access document_url: https://discovery.ucl.ac.uk/id/eprint/10049007/1/MIT%202018-004%20Lessons%20from%20UK%20EMR%20main%20report.pdf