Sweeping reforms of Britain’s energy markets are set to be unveiled over the next fortnight as the government launches the biggest upheaval in the sector since the electricity industry was privatised 20 years ago.
The Treasury will publish proposals that will set a price floor for carbon designed to give certainty to investors in low-carbon generation. The Department of Energy and Climate Change will propose mechanisms to promote renewables such as wind power, as well as new nuclear.
Both consultations are expected in the next two weeks and come as energy and environment ministers prepare to travel to Cancún for global climate talks.
The policies will support the £200bn-plus investment needed over the next 10 years to meet objectives for developing renewable energy and cutting carbon dioxide emissions. But they are likely to raise concerns among businesses and consumers about rising power bills, and will disappoint some environmentalists by supporting the use of nuclear power and gas.
The UK needs to meet tough climate targets. It has agreed with the European Union to raise to 15 per cent Britain’s energy derived from renewables by 2020. At the same time, it needs to add enough spare capacity to keep the lights on when the wind does not blow.
Power companies have argued that, to invest in offshore wind farms and new nuclear power stations, they need to be sure power prices will be high enough to recoup their investment.
Under the carbon consultation, the Treasury is expected to propose a carbon tax that would support the price of the carbon dioxide permits polluters must buy under the EU trading scheme. These permits today trade at about €15 per tonne of carbon. The power industry argues the carbon price needs to be at least around €35 a tonne. The new tax would kick in when the price of the permits falls below a set level.
Under the scheme the price would start low then ratchet up over the years to 2020 by which time the government must meet tough climate targets, according to industry executives.
The DECC consultation is expected to propose a range of options, including:
● A “feed-in tariff” guaranteeing low-carbon energy generators a higher return than they could expect from the market or an alternative such as the creation of an obligation on suppliers to provide a certain amount of energy from low-carbon sources. This would include new nuclear;
● A new emissions performance standard, setting limits for the carbon dioxide any new power station could emit. This is likely to, in effect, kill off new coal plants unless they fit equipment to capture and store emissions. It is likely that gas plants will be spared the same restrictions;
● New capacity payments to reward generators for building plants that will often stand idle, but can be called on, which are likely to favour flexible gas-fired power plants. As an alternative, National Grid, which runs the electricity transmission network, could be given powers to commission back-up plants.
The government has been clear there will be no public subsidy for new nuclear and it is understood to have taken legal advice about the possible new measures on this point.
The DECC declined to comment on the proposals ahead of publication. The consultation is set to last until spring when recommendations will be published in an energy white paper.
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