Energy firms get new incentives

The government hopes the incentive will boost investment in low-carbon electricity generation

The government is to guarantee prices for electricity to persuade the private sector to invest in new low-carbon forms of generation.

The move is part of a range of proposals to be outlined later by Energy Secretary Chris Huhne.

The aim is to ensure Britain has the electricity generating capacity it needs, while still meeting its climate change targets.

But consumers are likely to face much higher energy prices.

Some estimates suggest the reforms could add hundreds of pounds to bills.

In the next 10 years a quarter of our generation capacity is due to come off line.

Roughly half of that is due to tightening environmental regulation. But many of Britain’s ageing nuclear plants are also due to close.

The government wants industry to build a new generation of power plants using low-carbon technologies including renewables, nuclear, and clean coal and gas.

So it is proposing a range of incentives to give investors the certainty they will need, saying its plans represent the biggest reform of the electricity generation market in 25 years.

For low carbon generation – including nuclear – it is proposing a feed-in tariff with long contracts. This will give investors a guaranteed price for their electricity.

There would be extra support for what are described as younger technologies like offshore wind and wave power.

But the government maintains that there will be no specific subsidy for nuclear.

There will also be capacity payments to ensure there is back-up plant available on those days when the wind doesn’t blow.

There will be disincentives too. These will include support for the carbon price – which would make it expensive to generate power using dirty coal.

And an emissions performance target will also ensure there is no new unabated coal-fired electricity generation.

But the government’s reforms are expected to result in significantly higher energy bills.

The industry regulator Ofgem has estimated that bills could rise by as much as 25% over the coming decade, adding hundreds of pounds to the average household spend.

David Porter, chief executive of the Association of Electricity Producers said: “Politicians and the regulator seem to recognize that the huge cost of doing this will push up customers’ bills.

“Everyone involved has to be candid about that.”

Consumer groups have already voiced concerns that the price of building all the new capacity will simply be passed on to customers bills.

But writing in the Daily Telegraph, Chris Huhne said that the cost of electricity would be lower as a result of the reforms than it would otherwise have been.

“By providing greater certainty, we can encourage new market entrants and financial investors, reduce the cost of capital, and provide low carbon electricity at lower cost than under present policies,” he said.

Environmental groups are likely to welcome the plans.

In a statement, Friends of the Earth described the reforms as a once-in-a-generation chance to set energy policy for the next 20 years, adding that “it’s crucial the government makes the right decisions to ensure renewable power thrives instead of locking us into a dangerous high-carbon world.”

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