Project Discovery began in early 2009 and explores whether current market arrangements are capable of delivering secure and sustainable energy supplies for the future as well as looking at potential challenges that the industry could face over the next 10 years and the potential costs to consumers.
Project Discovery comprises three stages:
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Identifying the scale of the challenge and risks facing the GB and wider European and global energy markets over the next two decades through scenario and stress test analysis;
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Reviewing the current market arrangements to see if they are appropriate for this challenge; and
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If there are areas that need changing, identifying policy responses and testing these against our scenarios and stress tests.
First consultation
Published in October 2009, our first consultation concluded that up to £200 billion investment is needed over the next 10 years in new infrastructure to maintain secure supplies and meet climate change targets.
Ofgem devised four potential scenarios setting out the risks to GB energy supplies over the next 10 years. The responses to our October consultation showed overwhelming support for our approach to modelling uncertainty through scenarios and stress tests, however many respondents said that the risks were understated.
We received useful feedback on specific assumptions that were made and a number of updates have been made to our Discovery model, including adding some additional stress tests.
Second consultation
Published in February 2010, the second consultation sets out the results of our work under the second and third stages of Project Discovery. Five key issues emerging from the report:
- 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.
- The 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.
- Short term price signals at times of system stress do not fully reflect the value that customers place on supply security which may mean that the incentives to make additional peak energy supplies available and to invest in peaking capacity are not strong enough.
- Interdependence with international markets exposes GB to a range of additional risks that may undermine GB security of supply.
- The higher cost of gas and electricity may mean that increasing numbers of consumers are not able to afford adequate levels of energy to meet their requirements and that the competitiveness of industry and business is affected.
Current arrangements have largely delivered in the past but our assessment recognises that conditions have changed. The need to take action to drive decarbonisation of the energy sector, the large investment required to replace ageing generation plant and declining UK North Sea gas are all features of the markets that have grown significantly in importance in recent years. This is occurring against a back drop of a global financial difficulties and significant world-wide demand for investment in energy.
Further information can be found on the Project Discovery page.
Last updated: 18/05/10