• There is a need for unprecedented levels of investment to be sustained over many years in difficult financial conditions and against a background of increased risk and uncertainty.
• Uncertainty in future carbon prices is likely to delay or deter investment in low carbon technology and lead to greater decarbonisation costs in the future.
• The present incentives to make additional peak energy supplies available and to invest in peaking capacity may not be strong enough.
• Interdependence with international markets exposes GB to a range of additional risks that may undermine GB security of supply.
• Projected higher costs of gas and electricity may mean that increasing numbers of consumers are not able to afford adequate supplies of energy to meet their requirements and that the competitiveness of industry and business may be affected.

The report outlines an array of suggested policy packages, of increasing levels of disturbance to those presently in place, addressing the situation and canvassing opinion in relation to them. A minimum carbon price is featured in three of the policy packages. Improved price signals coupled with measures to promote demand-side response, and incentives to make peak energy supplies available and invest in peaking capacity including storage are also outlined. Two of the packages involve enhanced obligations on suppliers (to comply with a security standard), the system operator (to procure back-up generation and gas capacity) and generators (gas generation to have back-up fuel) in order to enhance supply security. Some packages address the concept of a centralised renewables market in order to help manage the variability of some forms of renewable energy sources for both the generator and the system operator. Long-term-capacity tenders covering renewables, low-carbon generation and/or gas storage are featured in some packages, and in one these are coupled with short-term capacity tenders for all generation and demand-side response. A Central Energy Buyer package also envisages a single entity responsible for coordinating the procurement of new energy supplies and strategic gas storage.

Ofgem is consulting on this report and invites responses by 31 March 2010. A copy of the report may be downloaded here.

For more information, please contact Vinson & Elkins lawyer Michael Doble. Visit our website to learn more about V&E's London practice, or e-mail one of the V&E London practice contacts.