Recently SmartGridWatch noted that U.K. smart metering plans are moving full speed ahead for 2012. A key part of realizing these plans involves creating a new regulatory and commercial framework for the smart grid.

Toward that end, last week the U.K. Dept. of Energy and Climate Change announced new progress on electricity market reform…

In July, the U.K. government published its electricity market reform white paper. The latest DECC announcement follows on that work. It includes a technical update which clarifies these points:

• Capacity market.To ensure reliability of the electricity supply, the U.K. government had decided to legislate a capacity mechanism in the form of a capacity market. New non-generation measures such as demand side response (DSR), storage and interconnection offer significant opportunities to improve security of supply and reduce the amount of generating capacity needed.
• Defining responsibilities.The government considered that the System Operator (an entity within the national grid) should manage feed-in tariff contracts for difference and the capacity mechanism.
• Details on work to enable investment decisions for early projects, and on arrangements for renewable obligation certificatesbeginning in 2027.
• Next steps for electricity market reform.

With or without energy market reform, U.K. household energy bills are likely to rise anyway in coming years. But the planned energy market reforms could still help U.K. consumers.

Nearly 85% of U.K. households use natural gas for heating. A new report by the U.K. Committee on Climate Change shows that in this market segment, increases in household energy bills will be caused primarily by rising cost of gas, not environmental policies.

CCC estimates that U.K. households could achieve the following annual average bill reductions:

• £100: Household solar photovoltaics
• £10: More efficient boilers
• £15: Demand response by active consumers, enabled by the smart grid and smart meters.

U.K. energy regulator Ofgem also is helping to build the platform for a smarter energy market. Ofgem has just released a consultation that considers smart meters as a platform for wider change — an opportunity to create “smarter markets” that are more efficient, dynamic and competitive, and that deliver better value to consumers.

Also, this consultation views smart metering as a way to provide much-needed upgrades to market systems and processes — and as a way to enable new tariffs, products and services that could help consumers save money by using energy more efficiently.

Smart meters, a capacity market, new energy services and demand response with price signals will make the U.K. energy sector smarter. SmartGridWatch looks forward to, and will continue to cover, this development.