LIVERPOOL, England (Reuters) - Britain is set to reform its electricity market to encourage energy companies to invest the billions of pounds needed for low-carbon power generation, including nuclear, a minister said Sunday.
Energy Secretary Chris Huhne told Reuters in an interview that consultation on changes to Britain’s electricity market would begin at the end of the year, with legislative proposals published in spring 2010.
“(The consultation) is to make sure that we are putting in place a framework that will bring forward the low carbon generation from whatever source that we need over the next 10 years,” Huhne said.
He said the framework had to be “stable, clear and certain enough” to persuade the energy companies to invest, as well as the financial markets that will fund them.
Energy regulator Ofgem has said Britain needs to invest 200 billion pounds to ensure supplies and meet climate change targets and will fail to secure this without changes to the present system of market arrangements and incentives.
“We have a major job not just in getting the energy companies to invest, but also sensitising the wider investor -- pension funds, insurance companies -- that this is a sensible thing for them to be investing in,” Huhne said.
Energy companies have been calling for a redesign of the power market to remove the volatility in the price they are paid for their output.
Without more certainty in the level of power payments the firms say they cannot invest the billions required to build new nuclear plants or invest in as yet unproved carbon capture and storage technology.
At present renewable power providers like wind farms benefit from a government incentive scheme that pays for their output regardless of the wholesale electricity price.
But other plants get no support, earning only what they can sell their output for. In the future that could mean power plants selling electricity at a loss at times of very high wind output as Britain develops offshore wind farms in the North Sea.
Huhne, speaking on the fringes of his Liberal Democrat party’s conference in Liverpool, said the government wanted the consultation to include capacity guarantees for power providers.
These guarantees would reward generators for keeping their plants on standby, ready to provide power when needed, and protect them from price variations.
Huhne said he believed that the market reforms, as well as the planned introduction of a gradually rising tax on carbon dioxide emissions, would see generators building new nuclear plants in Britain.
“Nuclear will be a part of the energy mix,” he said, but added that the level of nuclear development would be determined by energy companies and investors and not by the government.
“My job is to set the overall framework to encourage low carbon. And then within that framework it is the job of investors to make up their mind what the best option for them is, and that will determine the mix.”
Editing by Hans Peters