Department for Energy and Climate Change has announced two major reforms to attract the investment needed to replace our ageing energy infrastructure and meet projected future electricity demands.
Two New Mechanisms:
Contracts for Difference (CfDs) to enable investment in low carbon generation – they provide long-term revenue stabilisation, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.
Eight projects have been allocated early CfDs. By 2020, these projects will provide up to £12 billion of private sector investment which could add a further 4.5GW of low-carbon electricity to Britian’s energy mix.
Capacity Market (CM) – a regular retainer payment to reliable forms of capacity (both demand and supply side) to provide an insurance policy against future blackouts and help to make sure that consumers continue to receive reliable electricity suppies at an affordable cost.
DECC, Ofgem and National Grid are working together to supplement CM with additional balancing services to maintain security of supply in the middle of the decade.