October 28, 2016 / 1:16 PM / 3 years ago

Britain seeks to curb subsidy payments for diesel-fired power plants

LONDON (Reuters) - Britain has proposed tighter rules for small power generators, such as operators of diesel-fired plants seeking subsides under its scheme to secure back-up electricity supplies, it said on Friday.

The government has come under pressure from environmental groups to curb an increase in diesel-fired power generation, which emits air pollutants and more carbon dioxide than coal plants.

Current rules in the so-called back-up capacity market auction favor such small generators, who can end up receiving a “double payment” since their costs for participating in the scheme are lower than those of large generators, the government said.

“Where a policy has potential to over-reward market participants and distort the market then it is appropriate that Government should take any necessary action to address this,” a consultation issued by the Department for Business, Energy and Industrial Strategy (BEIS) said.

BEIS said the benefit for small generators participating in the auction, which pays plant operators a fee to be able to provide electricity at short notice, was 15 pounds per kilowatt in the 2015 auction - almost as much as the clearing price.

Changing the way suppliers are charged for participating in the auction would prevent this double incentive, BEIS said.

The government secured almost 50 gigawatts (GW) of electricity supply capacity for winter 2018/19 in the 2015 auction, with more than 1 percent of this coming from new diesel plants.

The government said any rule changes made after this year’s auction, to be held in December, could still be applied to the winning bidders.

Participants in the auction “should factor in the possibility that this levy could be subject to change in future and discount it accordingly,” BEIS said.

The consultation is due to close on Dec.23.

Reporting By Susanna Twidale and Peter Hobson; Editing by Greg Mahlich

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