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UK plans to lead a clean energy revolution

Date
16 December 2010
UK plans to lead a clean energy revolution

Government publishes plans to overhaul UK energy market to create a “level playing field” for vital clean energy investment

LONDON, December 16, 2010: The UK government has today published proposals on a series of “once in a generation” energy market reforms to safeguard and diversify the nation’s energy supply for the future and trigger a wave of new investment to:

  • Replace UK’s existing aging coal and nuclear power plants
  • Build more renewable projects such as wind and solar
  • Increase CCS plans to allow UK to continue to use coal and gas
  • Allow UK to meet its 2050 emissions targets

UK Energy Secretary Chris Huhne announced four new reforms that would create “a level playing field for low carbon technologies in the UK’s electricity market”:

  • A Carbon Floor Price will increase investment in low carbon generation by providing a clearer long term price for carbon in the power sector.
  • 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.
  • A Capacity Mechanism will ensure there remains an adequate safety cushion of capacity as the amount of intermittent and inflexible low carbon generation increases.
  • An Emissions Performance Standard will reinforce the existing requirement that no new coal is built without carbon capture and storage.

The Department for Energy and Climate Change says the four proposed reforms build on the recommendations of the Committee on Climate Change, they make good on specific commitments in the coalition’s programme for government, including that there will be no subsidy for new nuclear, and they live up to the Prime Minister’s promise that this would be the greenest government ever.

Rules for existing energy investment such as the Renewables Obligation (RO) would be protected but Mr Huhne said: “Without investment in renewables, new nuclear and carbon capture and storage, emissions will remain too high, we will become dependent on energy imports, and increasingly vulnerable to fossil fuel price volatility. Low carbon technologies must be given the chance to become the dominant component in our electricity mix. In the new, reformed UK electricity market, the economics of low carbon will stack up like nowhere else in the world.  By 2030, three quarters of our electricity could be low carbon.”

He said the UK had a “Herculean task” ahead to replace a quarter of all UK’s ageing coal and nuclear electricity generation plants and to cope with an anticipated doubling of electricity demand to 2050 as consumers increasingly use electricity for vehicles and heating their homes. According to Ernst & Young LLP, the cost of replacing existing plants and building renewable projects will be around 200 billion pounds ($316 billion). The UK government estimates that £110 billion alone will be needed in the next 10 years with each new nuclear power plant costing up to £6 billion.

Earlier this year, UK Energy regulator Ofgem said that “far-reaching energy market reforms” were necessary and said that while privatization had kept down energy prices, the scale of investment needed to meet climate change targets and replace aging plants is so large it wouldn’t happen without government guarantees. Achieving the necessary certainty required by major investors has to date been clouded by external factors including the global financial crisis, significant world-wide demand for investment in energy, tough EU emissions targets, the closure of ageing power stations, an increasing dependency on gas imports, and uncertain carbon prices.

Mr Huhne said today that the planned reforms would create “greater certainty of delivering the investment so the lights stay on in this new low carbon world”.

Mark Kenber, Deputy CEO The Climate Group said: “The UK has no time to spare in overhauling its creaking high carbon energy supply if it wants to keep the lights on and meet its bold targets for cutting national emissions. This reform is both urgent and necessary to break the UK’s addiction to high carbon energy because until now market forces and a fluctuating carbon price have created an uncertain environment for investors and policymakers alike. A clear market signal is required in 2011 to trigger the low carbon investment, jobs and growth that will cement the UK as a leading player in the £3 trillion global market for low carbon goods and services. The reforms must support large-scale expansion of renewable capacity, address infrastructure needed to bring offshore wind and other clean energy onto the national grid and there should be a focus on efficiency to reduce the numbers of new plants required. Getting this right for the environment, and to keep costs as low as possible for businesses and consumers, means starting now.”

A spokesperson for Scottish Power said: “Today’s publication is an important milestone on the road to securing an investment framework for the decarbonization of Britain. Now we need to fill in the detail, on which the success of this plan will depend. At ScottishPower we will work with the Government to ensure that the final package delivers the progress that we need, while keeping the interests of consumers firmly in mind.”

As well as creating cleaner and more secure supply, Chris Huhne claimed the reforms would also be better for UK consumers: “There is no doubt that this framework …will actually save money for consumers compared with patchwork quilt of measures we have at the moment”. He has estimated that under the new plans consumer bills could be 4 per cent lower than alternative policy measure the current government have inherited.

  • Responses to the proposals on a carbon floor price should be made to the Treasury by 11 February, with final decisions expected in the Budget on 23 March 2011. The full consultation document is available at www.hm-treasury.gov.uk
  • Responses on the other three components of electricity market reform are invited by 10 March 2011, with final proposals expected in a White Paper in late Spring. The full consultation document is available at www.decc.gov.uk
  • A parallel review of Ofgem and the energy regulatory framework is under way to clarify the respective roles of the Government and Ofgem. Responses to the Government’s initial consultation are published today at www.decc.gov.uk/en/content/cms/consultations/ofgem_review/ofgem_review.aspx

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