UK government makes proposals for low-carbon power reform

• 13 years ago (2010-12-19)
• Junior Isles

Europe 1061 Nuclear 639 Renewables 751

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The UK government has proposed sweeping power sector overhauls aimed at securing the billions of pounds of investment needed for low-carbon energy.

The Electricity Market Reform measures would create a price floor for carbon to encourage investment in costly low-carbon energy projects such as nuclear and offshore wind power. The plan also would set emissions performance standards, pay electricity generators for maintaining extra production capacity and establish a feed-in tariff mechanism to smooth out market volatility.

If approved, the proposed overhauls would be the biggest shake-up of the UK's electricity sector since deregulation and subsequent privatisation made it the most liberalised power market in Europe.

More than £110 billion ($171 billion) is required to build low-carbon power-generating capacity and transmission – double the investment of the last decade, the government said.

However, the current market structure is more likely to deliver more cheap and quick to build gas-fired power plants. This would leave the UK more dependent on energy imports and volatile international prices – something the government is seeking to avoid, UK Energy and Climate Change Secretary Chris Huhne said in a statement to parliament.

The overhauls are pressing because around a quarter of the UK's generating capacity is being retired over the next decade. But binding European Union climate -change targets for 2020 mean that new power -generating capacity has to be low in carbon emissions.

"Low-carbon technologies must be given the chance to become the dominant component in our electricity mix," Mr. Huhne said.

The government's planned price floor for tradable carbon- emissions credits is designed to increase investment in low-carbon generation by providing a clearer long-term price for carbon.

Under the EU's emissions trading system, power companies are given permits to emit a specified amount of carbon dioxide, but are allowed to sell those permits if they produce less carbon or buy them if they do not have enough.

Utilities have said the carbon price, currently trading at around €14 ($18.50) a metric ton, is too low to encourage low-carbon investment. A specific carbon price floor has not been decided, but the government is looking at three options: £20, £30 or £40 per metric ton in 2020, rising to £70 in 2030.

The government is proposing long-term contracts for low-carbon generation through a feed-in tariff, with a contract for difference, where generators would get top-up payments if wholesale prices are below a predetermined level. This measure is designed to encourage new entrants into the market, as it is now widely believed that the six big utility companies operating in the UK would be unable to fund all the investment required in new capacity over the next decade.

"We are looking to drive about £20 billion worth of investment in new generation, working with our partner Centrica, to be on stream from 2018," said Vincent de Rivaz, chief executive of Electricite de

France SA's UK unit EDF Energy, which is hoping to spearhead the nuclear revival in the UK along with Centrica plc.

"Putting these reforms in place is an essential step to make this possible," Mr. de Rivaz said.

The consultation process will run until February 11, after which the government aims to propose legislation in March and put it to Parliament later in 2011 for adoption as law.