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Electricity Market Reform

Electricity Market Reform (EMR) is the Government’s initiative to deliver low carbon electricity supplies to meet our carbon reduction targets, and ensure we secure the UK’s electricity supply – keeping the lights on at times of peak demand, whilst minimising the costs of the measures. It is estimated that because of plant closures and the need to replace and upgrade the UK’s electricity infrastructure, the sector will need to attract around £110 billion of investment (in new networks and generation plant) by 2020. Through EMR, two of the main mechanisms being introduced include;

Contracts for Difference (CfD)

These have been put in place to stimulate long-term investment in low-carbon generation by providing predictable revenue streams for generators. The vision is that this will encourage new and efficient investment by reducing risks to investors under a private law contract.

CfDs will in time replace the existing Renewable Obligation (RO) which closed to new projects in 2017, although the RO will continue past this date to provide support to schemes benefiting from this mechanism.

Capacity Market (CM)

This auction-based arrangement has been put in place to secure the UK’s electricity supply by making financial incentives available to participants – making sure the lights stay on at times of peak demand.

Capacity market participants will receive a regular payment in return for their capacity being available when the system is ‘tight’. They will also face a penalty if it is not available when needed.

Eligible generators and customers that can demand side manage their consumption can both participate in this scheme.

What does this mean for customers?

Customers will see the charges relating to EMR on their bills. These charges are explained below.

Half-hourly (HH) Contracts

For HH customers, there are four lines on bills under ‘Taxes, Levies and Other Statutory Obligations’ with reconciliation appearing on bills as additional lines. The four lines will appear as follows:

HCfD Operational Levy xxxxx.x, KW at 0.00614 pence per kWh £zz.zz
CfD Interim Levy Rate xxxxx.x,KWh at 0.9733 pence per kWh £zz.zz
CM Settlement Costs Installment £s per month £zz.zz
CM Supplier Levy £s per month £zz.zz

The CfD Operational Levy covers the operational costs of administrating CfD and is charged on a pence per kWh basis as shown above and will be reviewed by the relevant regulatory body on an annual basis.

The CM Settlement Costs Levy is designed to recover the administration costs of running the CM i.e. the costs of the Electricity Settlements Company (ESC); this is then recovered from suppliers based on their market share during periods of high demand. We will recover the charge from customers via monthly instalments based on an estimate of their share of consumption in periods of high demand (4-7pm on working days November – February) and will be subject to reconciliation once actual demand is known.

The CfD Interim Rate Levy and CM Settlement Levy cover the operational components of CfD and CM. These charges will be subject to reconciliation.

CM Supplier Levy charges are calculated on actual half hourly (HH) consumption between 4-7pm November-February, working days only. This is the main CM charge which is passed to capacity providers operating the scheme.

Please note: although the charges above are calculated using pence per kWh rates expressed to four decimal places, the figures are shown on bills to three decimal places for clarity. Rounding is applied in a conventional manner.

These schemes are in their infancy and it is anticipated that the associated costs will rise over time. Please find below links to the regulatory bodies responsible for publishing these rates:

Non Half-hourly (NHH) Contracts

For NHH customers, there will be one new line on bills under ‘Taxes, Levies and Other Statutory Obligations’ and it will appear as follows:

EMR Levy xxxxx.x kWh at y.yyy pence per kWh £zz.zz

The EMR Levy is calculated using a pence per kWh rate applied to consumption and replaces the four lines that will appear on HH bills representing the administration and operational costs associated with EMR legislation. The EMR Levy will not be reconciled and is designed to cover all CM and CfD costs, simplifying them into one line on bills for customers on specific tariffs.

Please note: the charges above (for both HH and NHH) will be calculated to six decimal places, though the figures represented on bills are shown using just three decimal places for clarity. Rounding is applied in a conventional manner.

The table below shows EMR Levy Rate values. We expect these to increase over time and the information will be updated to reflect this. Please note that some values shown below for future consumption periods may be changed before the consumption is invoiced.

Month of Consumption EMR Levy Rate (pence per kWh)
January 2020 1.033
February 2020 1.033
March 2020 1.033
April 2020 1.806
May 2020 1.806
June 2020 1.806
July 2020 1.603
August 2020 1.603
September 2020 1.603
October 2020 1.752
November 2020 1.752
December 2020 1.752

Will any customers be exempt from these charges?

The government has agreed to make electricity intensive industries exempt from some of the CfD costs and other indirect costs incurred through energy and climate change policies.

To keep up to date on the latest Electricity Market Reform news and policy updates click here.

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