Electricity Market Reform

Electricity Market Reform (EMR) was introduced in 2012 to stimulate investment and secure supply in the energy system. It has two main mechanisms that are recovered directly through consumers’ energy bills:

Contracts for Difference (CfD)

These are designed to stimulate long-term investment in low-carbon generation by reducing the risks to investors and providing predictable revenue streams for generators.

Capacity Market (CM)

This auction-based arrangement supports GB’s electricity supply by offering financial incentives to CM participants. They get regular payments in return for making their capacity available when the system is ‘tight’ and the lights are at risk of going out. They’ll also face a penalty if it’s not available when needed.

Eligible generators, and customers that can manage their energy demand, can participate in this scheme.

How are the charges represented on customer bills?

The EMR charges on your bills are explained below.

Half-hourly (HH) contracts

If you’re using HH metering, there are four lines on your bills under ‘Taxes, Levies and Other Statutory Obligations’ – see below – with reconciliation appearing as additional lines.

The HCfD Operational Levy covers the costs of administrating CfD and is charged on a pence per kWh basis (as shown). The relevant regulatory body will review it annually.

The CM Settlement Costs Levy recovers 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. All suppliers recover the charge from their customers via monthly instalments based on an estimate of their consumption in periods of high demand (4-7pm on working days, November – February). Once actual demand for those periods is known, suppliers reconcile the charges.

The CfD Interim Rate Levy and CM Settlement Cost Instalment cover the operational components of CfD and CM. These charges are also subject to reconciliation.

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

Please note: the charges above are calculated using pence per kWh rates to four decimal places, but figures shown on bills are to three decimal places for clarity. Conventional rounding of the figures takes place.

Please find below links to the regulatory bodies responsible for publishing these rates:

• Department of Energy and Climate Change.

• Low Carbon Contracts Company (LCCC).

• EMR Settlements Ltd.

Non Half-hourly (NHH) contracts

If you’re on a NHH contract, you’ll see a line on bills under ‘Taxes, Levies and Other Statutory Obligations’ appearing as follows:

The EMR Levy is calculated using a pence per kWh rate applied to consumption. It replaces the four lines that appear on HH bills representing the 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) are calculated to six decimal places, but the figures on bills are shown to three decimal places for clarity. Conventional rounding of the figures takes place.

The table below shows EMR Levy Rate values, which we’ve updated on bills as they’ve increased.

Are any customers exempt from these charges?

Electricity intensive industries (EIIs) are now exempt from the costs of the CfD and CM schemes, as well as a number of other policy costs and some network charges.

Government is proposing some reforms to the CfD and CM as part of its Review of the Electricity Market Arrangements (REMA) programme. You can see the latest here: Review of electricity market arrangements (REMA) - GOV.UK