Today, the government publishes its consultation proposals for reform of the electricity
generation market. The key debate over the next few months will be whether Britain continues to have a competitive market, or reverts to central planning of the power generation sector.
New Labour paid lip-service to a competitive electricity market, while chipping away at its ability to operate effectively – through a constant accretion of new policies, typically promoting renewables. The effect has been to salami-slice the market into technology-specific segments, to increase political and regulatory uncertainty, to encourage lobbying and rent-seeking, and to increase financing costs. Instead of competing by taking investment decisions and innovating, market players wait for government to say what they want. There is a gradual reversion from market decisions to ‘monopoly’ decisions by government.
The Committee on Climate Change (CCC) said last week that the government should, in future, specify and tender long-term fixed price contracts for its desired generation mix. This
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