This document summarizes the key components of the UK's energy transition plan: 1. The Electricity Market Reform (EMR) introduces schemes like Contracts for Difference and a Carbon Price Floor to support investment in low-carbon technologies while ensuring security of supply and affordability. 2. Regulation and markets play an important role in enabling change, with the new RIIO framework incentivizing network investment and future trading arrangements being developed to facilitate an orderly transition. 3. An inclusive, evidence-based process is important to assess the costs and benefits of the transition to a low-carbon energy sector.

1. Energy Transition – GB
experience
Giuseppina Squicciarini
Head of Electricity Policy, Markets
29 May 2013

2. 2
Outline
Energy transition in GB: 3 complementary components:
1. Government's intervention to drive shift to low carbon
secure energy sector – Electricity Market Reform
2. Regulation and markets important to enable and support
change
3. Across the board: a transparent, highly inclusive, evidence
based process

3. 3
EMR to deliver a low
carbon energy sector
Low carbon
technology
support
Security of
supply
Capping CO2
emissions
Edward Davey, Energy Secretary: EMR is “the
biggest transformation to Britain's electricity
market since privatisation”

4. 4
• The new FiT CfD available from 2014 for technologies such as wind,
hydro, biomass, carbon capture & storage (CCS) and new nuclear
• The intention is to have a series of auctions in the long term, in the short
term there will be technology specific reference prices.
Contracts for Difference to
support investment

5. 5
GB: uncomfortably low reserve margins,
potential need for a Capacity Mechanism
0%
5%
10%
15%
20%
25%
2012/13 2013/14 2014/15 2015/16 2016/17
De‐rated capacity margin
Base Case Low CCGT Full imports from Continent
Full exports to Continent High CCGT

6. 6
RIIO: evolutionary change to network
regulation
What remains same as RPI-X
Ex ante price
control
Building blocks
approach
Reward for
efficient delivery
Network companies who deliver efficiently will remain financeable
What is different
RIIO = INCENTIVES + INNOVATION + OUTPUTS
Output led
Longer term
incentives
Innovation
In the setting of
the incentives
In the price
control process
New business
plans
Enhanced
engagement Fast tracks

7. 7
Future Trading Arrangement process to ensure a
transparent approach to market changes
Future Trading Arrangements (FTA) Process:
– A focal point for stakeholders to engage with Ofgem and Ministerial
Department on matters affecting trading arrangements
– Build consensus on principles underpinning the trading
arrangements – support investors certainty
– Seek to create a coherent, consistent and orderly approach to
ongoing changes (driven by EMR, Europe, change in generation
mix, technology enabling demand response)
– Seek to ensure consistency between network and market changes

8. 8
Conclusions
1. EMR introduces policy schemes supporting investment
to address the low carbon challenge also ensuring
security of supply and affordability
2. Regulation and markets have an important role to
play: new regulatory framework to support network
investment; develop future trading arrangements to
ensure the market does “the heavy lifting”
3. The process matters: focus is on inclusive, evidence
based decision making process to assess costs and
benefits

9. 9

10. 10
• Carbon Price Support is an HMT-led policy to create a floor price
for carbon. It works by using taxation to top up the EU ETS price
to a defined ‘floor’ which will follow an increasing trajectory,
starting from £16/tonne in 2013, rising to £30/tonne in 2020.
Carbon Price Support

11. 11
Emissions Performance
Standard
• The Emissions Performance Standard (EPS) puts a limit on the
carbon intensity of new individual generators. It will be introduced
in April 2014 at 450g CO2/kWh which will prevent any new coal
plants being built.
• It will be grandfathered from the point of consent to the end of the
economic life of the plant, meaning plant below 450g/kWh built
now will not be impacted if the EPS is subsequently tightened.

12. 12
Some of the key challenges to current arrangements:
Renewables -
magnitude not
envisaged at
NETA - impact
on balancing
and system
operation
Need for demand
side response to
facilitate
intermittency
EU TM requires changes to trading
arrangements across forward,
inter and intra day markets
Insufficient signals for
market investment
Route to market for
renewables – balancing
risk, counterparty
availability
SO and Power
Exchanges may
need to adapt
Consistency with
gas market
arrangements
Balancing
Mechanism
Forward Trading Day
ahead
Within
Day
Existing arrangements assume predictable, large
scale, transmission connected generation mix
and a system largely isolated from the EU