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Wind Energy Update

21 Dec 2010 11:12:32

UK reforms boost investor certainty

The Department of Energy and Climate Change (DECC) and HM Treasury have together launched consultations on fundamental reforms to the electricity market to ensure the UK can meet its climate goals and have a secure, affordable supply of electricity in the long term.

Reforms aimed at moving the UK to the front of the global race for electricity investment, driving the growth of clean energy industries in the UK, and ensuring the best possible deal for consumers have been proposed by coalition ministers.

Energy and Climate Change Secretary Chris Huhne said: "More than £110 billion of investment is needed in new power stations and grid upgrades over the next decade, that's double the rate of the last 10 years. Put simply, the current market is not fit to deliver this. The UK was first to put binding carbon reduction targets into law. Now the coalition is taking the historic step of introducing, permanently, a level playing field for low carbon technologies in the UK's electricity market."

Economic Secretary to the Treasury Justine Greening said that the launch of this consultation "demonstrates our continued commitment to being the greenest government ever".

"This is the first step towards getting the investment we need in low carbon technology," said Greening.

There is widespread consensus that reform of the electricity market is needed. "About 30% of our electricity must come from renewables by 2020, up from 7% today, to meet our contribution to Europe's target on renewable energy," added Greening.

It has been mentioned that under the reforms outlined, the competitive market will remain intact but four interlocking policy instruments are proposed to change the returns generators can expect for the power stations they build and the electricity they generate.

Greater long-term certainty around the additional cost of running polluting plant through a carbon price floor. Proposals from the Treasury to provide greater support and certainty to the carbon price will increase investment in low carbon generation by providing a clearer long term price for carbon in the power sector.

Long term contracts for low carbon generation will make clean energy investment more attractive still. Through a proposed 'contract for difference' Feed-in Tariff, the government will agree clear, long term contracts, resulting in a top up payment to low carbon generators if wholesale prices are low but clawing back money for consumers if prices become higher than the cost of low carbon generation. An alternative 'premium' Feed-in Tariff is also set out in the consultation document.

Additional payments to encourage the construction of reserve plants or demand reduction measures (so-called 'negawatts') to ensure the lights stay on. A capacity mechanism will ensure there remains an adequate safety cushion of capacity as the amount of intermittent and inflexible low carbon generation increases.

A back-stop to limit how much carbon the most dirty power stations – coal – can emit. An Emissions Performance Standard will reinforce the existing requirement that no new coal is built without carbon capture and storage.

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