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Special provision for clean power

Encouragement of renewable energy generators is one of the government's key aims in its push to reform the UK's electricity trading set-up. Announcing a program of reform last month aimed at removing distortions in the existing electricity pooling arrangements, energy minister John Battle made it clear that renewable energy was to be a priority. The announcement coincided with the publication of the government's long awaited Energy White Paper.-At the core of the reform are proposals which Battle had asked Electricity Regulator Stephen Littlechild to provide. These proposals are the starting point for developing completely new electricity trading arrangements, says Battle. "I have asked Professor Littlechild to look particularly carefully at a number of benefits I want to be sure that the new trading arrangements will provide: security of electricity supplies both now and in the longer term; prices that are transparent and ensure liquidity, enable abuse of market power to be detected, and which allow new entry to the market; and encouragement for combined heat and power and renewables generators." -The new trading system will do away with the electricity pool and replace it with a three pronged structure. The first prong is to be a forward market where customers and suppliers contract bilaterally for electricity -- where most power will be traded -- and a derivatives market (such as futures and options) where companies can hedge financial risks. The second element is a short term bilateral market operating from one day to around four hours ahead. It will allow screen-based trading so generators, suppliers and large customers can adjust their contract positions. Third, a balancing market -- operating from four hours ahead up to the point of delivery -- in which National Grid Company would buy offers of flexible capacity and load reductions to balance supply and demand on the grid system.-Overhaul of the electricity pool was one of the government's priorities set out in its Energy White Paper, published October 8. This presents the results of its ten-month review of energy in the UK designed to remove distortions in the electricity market and to safeguard security and diversity of supplies at lower prices. Other policy measures to emerge from the review include a stricter consents policy on gas fired power stations to slow the "dash for gas," divestment of coal fired plant by large generators to encourage competition, and a regulatory framework separating monopoly distribution from competitive supply activities.-Renewables' place in the energy mix does not figure strongly in the White Paper, since the government is still considering how it is to meet its target of 10% of electricity from renewable sources by 2010. Results of a separate renewable energy review are expected before the end of the year. Meanwhile, the White Paper says that although renewables have an important part to play in the UK's energy future, it would not be realistic to expect them to replace fossil fuels' contribution to diversity and security up to 2020. This is because of the intermittent and unpredictable nature of supply which means they cannot be relied on to provide flexible generation, it says.-

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