The U.K. government is considering mechanisms to strengthen the carbon price and other incentives including feed-in tariffs or capacity payments to reward generators of low-carbon electricity in order to secure the huge investments required over the next decade in the sector, Energy Minister Charles Hendry said Wednesday.
The U.K. government is considering mechanisms to strengthen the carbon
price and other incentives including feed-in tariffs or capacity payments to
reward generators of low-carbon electricity in order to secure the huge
investments required over the next decade in the sector, Energy Minister
Charles Hendry said Wednesday.
The initiatives are part of the Electricity Market Review--a reform of the
power market that could herald the biggest shake-up of the
U.K.
electricity sector since privatization of the industry in the 1980s made it the
most competitive market in
Europe
.
The government, which is discussing its plans with utility companies over the
next two weeks, is expected to publish its proposals for the EMR before
Christmas and is targeting proposed legislation in the spring, to be swiftly
followed by its adoption as law.
A separate consultation on the mechanism for setting a carbon price floor is
set to be released at the end of this week or early next week by the Treasury,
which has taken the lead on the document. This will then feed into the broader
EMR.
"We should be in no doubt that this is the biggest piece of work we will
be doing as a government in energy policy--we are creating a new electricity
market and it's the biggest change for 30 years in this sector," Hendry
told investors at an event organized by
Britain
's
energy regulator Ofgem.
At stake is GBP200 billion investment that Ofgem has estimated is needed to
build low-carbon generation such as offshore wind farms, nuclear power plants
and coal and gas power stations with carbon capture and storage technology in
addition to modernization and expansion of the grid to accommodate the new
generation.
Around a quarter of the U.K.'s aging generating capacity is being retired over
the next decade and has to be replaced with low-carbon alternatives to meet
binding European Union climate change targets for 2020 while also maintaining a
diverse source of supply for energy security and simply keeping the lights on.
But utility companies have said the carbon price, currently trading around
EUR15 a metric ton, is far too low to justify the huge investments needed to
build the next generation of nuclear power plants and costly offshore wind
farms.
Weak gas and electricity prices together with constrained lending to such
projects following the financial crisis have also cast doubt over the huge
investments.
Some, such as French atomic giant Electricite de France SA (EDF.FR), that's
leading the
U.K.
's
nuclear revival, have called for a carbon price floor to support investment in new
nuclear power plants.
But others, that also have coal-fired generation in their portfolio and would
be penalized by the higher carbon price, want additional measures too.
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