Energy UK ‘very nervous’ about proposed supplier obligation

A senior figure at Energy UK has said the trade body is “very nervous” about government proposals to obligate suppliers to procure renewable energy for their customers.

Deputy director of policy Adam Berman was responding to the Department for Business, Energy and Industrial Strategy’s (BEIS) Review of Electricity Market Arrangements (REMA) consultation which was published earlier this week.

In what has been billed “the biggest electricity market shake up in decades”, the government is exploring a range of options for wholesale market reform.

BEIS said REMA would run alongside the refresh of its energy retail market strategy and that one option being considered is an obligation on suppliers to directly procure green electricity either straight from generators or through an intermediary.

Berman questioned both the need for and the practicalities of such an obligation, saying the main barriers to the mass rollout of low-carbon generation relate to issues such as planning and transmission infrastructure.

He told Utility Week: “Is a lack of a supplier obligation holding back our low carbon power rollout? My instinctive answer is that is not one of the major roadblocks to progress. Could it enhance progress? Possibly and that is something we need to evaluate.

“But all I can say is when you are a major developer and you are putting in place a massive new offshore windfarm that’s going to provide gigawatts of new energy for millions of homes, or you’re building a new nuclear power plant, the issues that this particular solution seems to address don’t on first reading look like the key issues that are holding back that rollout.”

He raised concerns over the implications introducing such a drastic change to the way the wholesale market works: “The private sector investment is there but it needs a stable regulatory environment which doesn’t mean massive changes in the market at relatively short notice. It means evolutionary change. It does mean change to pre-existing policies, of course the market does need reform, but it needs doing in a long term and sensible way.

“This is an interesting question in the longer term that we need to look at. If you’re asking should we be doing this in the next five years, I think we will be very hesitant to push for a solution as dramatic as this within that timeframe. In the longer term, let’s wait and see. But I think in the short term, we would be very nervous about this sort of a shift without really understanding the consequences of it and indeed whether it’s needed.”

Berman’s thoughts were shared by Energy UK’s deputy director of retail, Dan Alchin, who said there are “bigger fish to fry”.

Alchin further questioned what the supplier obligation will achieve over and above other policies BEIS is considering.

“If you have a generation mix that is already currently moving towards renewable technology and it’s cheaper, there is a natural commercial incentive already on a supplier to purchase energy as cheap as they can to get a commercial advantage to win customers,” said Alchin.

Meanwhile, a BEIS spokesperson said: “No decisions have been made about the supplier obligation and we are currently seeking views on a wide range of options for reform through our comprehensive Review of Electricity Market Arrangements.

“We will carefully consider the impact of REMA options on consumers and suppliers, and remain committed to delivering our world-leading climate targets whilst reducing exposure to volatile international gas markets.”