Government’s proposals designed to encourage investment in low-carbon energy

The government has published its long-awaited consultation on the review of energy market regulation, which is designed to encourage the construction of a new wave of nuclear power stations.

Climate change secretary Chris Huhne said the reforms, which include setting a floor price for carbon pollution, as well as guaranteeing low carbon energy producers a minimum price for power, will allow the required £110bn investment in low-carbon power by 2020.

The reforms are designed to make 30% of the UK’s energy come from renewable power, rather than the 7% generated today. At the same time 20 large power stations are scheduled to shut down in the next 10 years.

The proposed reforms have four key elements:

  • A carbon price floor. This is designed to increase investment in low carbon generation by providing a clearer long term price for carbon pollution in the power sector.
  • A proposed ‘contract for difference’ Feed In Tariff. This will take the form of long term contracts for low carbon generation, resulting in a top up payment to low carbon generators if wholesale prices are low - but also clawing back money for consumers if prices become higher than the cost.
  • Additional payments to encourage the construction of reserve plants or demand reduction measures to ensure the lights stay on.
  • A back-stop to limit how much carbon the most dirty power stations - coal - can emit.

Energy and Climate Change Secretary Chris Huhne said the reforms would lay the foundations for a sustainable economy. He said: “These reforms will… bring billions in investment in the UK through greater certainty, safeguarding jobs up and down the supply chain.”

He added: “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. In the new, reformed UK electricity market, the economics of low carbon will stack up like nowhere else in the world.”

Economic Secretary to the Treasury Justine Greening said she wanted the consultation to be “a green light for industry, giving them the overdue confidence and assurance they need to investment in low-carbon power generation.”