UK green energy plans risk frustrating investors

LONDON Fri Jul 8, 2011 12:37pm EDT

LONDON (Reuters) - Britain will exclude details of support for green energy under power market reform plans it is due to unveil next week, say sources familiar with the statement which may disappoint investors and developers.

The proposals will center around a guaranteed purchase price for low carbon electricity, critically widening existing renewable energy support to include nuclear power.

But the plans, which require new legislation, will leave open the level of purchase price, the details of the purchasing agency and the amount of low carbon electricity the agency would buy, say sources involved in drawing up the plans.

"That's going to be too detailed. I think they'll do a review and analysis closer to the time," said one source familiar with the preparing the proposals, referring to the launch of the new scheme in 2014.

That may leave investors in individual projects and in manufacturing facilities unsure about the size of opportunity, and could delay green energy development as the country replaces aging coal plants with gas-fired, renewable and nuclear power.

Britain is expected to struggle to meet a binding European Union target to get 15 percent of its energy from renewable sources by 2020, compared with just 3.3 percent last year.

The government would further consult on the identity of the purchasing agency, whether that's a new institution, the existing watchdog Ofgem or a government department.

"It will be less clear-cut than it could be," said the source. "They'll probably want to do further work on that question."

Energy consumers will continue to foot the bill for low-carbon power support, as presently.

The new scheme will not set an explicit target for utilities on how much of their electricity must be from renewable sources, but they would continue to face such obligations under present contracts for the next 20 years and beyond.

The purchase price may be set by an auction process for mature technologies where there were enough bidders, possibly including nuclear, and otherwise set administratively for emerging technologies such as offshore wind, said the source.

"It won't fly, it's too complicated, there's not enough clarity," said a senior executive at an energy company.

PROTECT

The government will confirm previous plans to limit carbon emissions from new coal plants, effectively blocking plants that have not fitted carbon capture and storage equipment, which is supposed to trap emissions before these are piped and stored underground.

The plan would implement that measure by capping annual carbon emissions from power plants at 450 grams of carbon dioxide (CO2) per kilowatt hour of power production.

The government will introduce the new low-carbon support scheme from 2014, replacing a complicated system at present where generators of renewable power earn tradable green certificates which they then sell to utilities.

In the meantime, it is expected to cut support for onshore wind under the existing "renewable obligation certificate" (ROC) scheme, said a second source familiar with the plans.

Under the new scheme an unspecified agency would pay a top-up premium above the wholesale power price, up to an agreed fixed, or "strike," price.

If the wholesale power price exceeded the strike price, the renewable energy project operator would have to pay back the difference to the agency under a "contract for difference" scheme which is supposed to offer better value for money.

The new scheme will protect existing ROC contracts, giving comfort to existing renewable power generators such as wind farms that utilities won't try to renegotiate such contracts because of a change in legislation.

Developers will be able to choose between the ROC and the new scheme from 2014-2017.

(Reporting by Gerard Wynn; Additional reporting by Karolin Schaps, editing by Anthony Barker)

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