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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