Nov. 30 (Bloomberg) — U.K. reforms to the electricity
market boosted plans for low-carbon generators such as wind and
nuclear power and offered industry a reprieve from costs, though
left environmental groups demanding emissions-cutting targets.
The government plans to exempt energy intensive industries
such as steel and cement from costs arising from contracts
guaranteeing low-carbon generators a price for power, the
Department of Energy and Climate Change said yesterday.
The so-called contracts for difference are one of the raft
of measures that will cost consumers 7.6 billion pounds ($12
billion) in 2020, according to DECC estimates. Prime Minister
David Cameron’s government is seeking to boost incentives for
investors in new nuclear power and renewable plants without
damaging business as it seeks to shore up the economy.
The Confederation of British Industry called it a vital
step. Mark Kenber, chief executive officer of The Climate Group,
said “it does very little to shield households from higher
energy bills and reduce fuel poverty.”
DECC said the proposals will add about 95 pounds to the
average home bill in 2020 from about 20 pounds now. The main
mechanism, the contracts for difference, will be allocated on a
“first come, first served” basis and last 15 years, DECC said
in documents with the bill.
Guaranteed Prices
Low-carbon power generators such as wind farm operators or
nuclear providers that want to apply for the contracts will be
able to do so before a project’s financing is finalized,
according to the reforms. Technologies including solar and
biomass that can be built more quickly will be allocated their
own budget.
“Developers will not have to risk taking a project right
through to the final investment decision with no guarantee that
they would be awarded a contract,” the Renewable Energy
Association said in a statement welcoming the plan.
The contracts offer “stability and value” for customers
as well as long-term assurance for investors, EDF Energy,
Electricite de France SA’s local unit, said in a statement.
The guaranteed prices, or “strike prices” given in the
contracts will be set by government at first and won’t be known
until late next year. Until price details for the technologies
are agreed and the capacity involved clarified, it was “too
premature” to fully welcome the measures, Tom Delay, chief
executive of the Carbon Trust, an adviser on emissions
reduction, said in a statement.
Market Risk
“The worrying thing is how much government intervention
there is in that process,” Richard Slark, a director at Poyry
Management Consulting Ltd. said by phone.
“We’re stripping out the market risk but we’re leaving
some policy regulatory risk,” he said.
A government-owned company will act as the single
counterparty to the contracts with its running costs likely met
by industry. Tim Yeo, chairman of the Energy and Climate Change
Committee, said government should back the contracts directly to
reduce the costs of capital for projects.
The measures also include introduction of a capacity market
paying generators for staying online, with auctions from 2014
for capacity provided from 2018. There will be additional
capacity earlier, in 2015 to 2016, for “demand-side” measures,
Davey told reporters. The costs of payments will be shared
between electricity suppliers in the delivery year.
Gaping Hole
SSE Plc, the U.K.’s second-largest energy supplier, said
earlier it stalled a gas plant investment decision based on the
lack of capacity-market detail. Energy regulator Ofgem, which
won consumer redress powers in the bill, has warned electricity
shortfall risks emerge from 2015.
The “gaping hole” in the bill is a lack of 2030 targets
to cut power sector emissions, Greenpeace said in a statement.
Clause 39 of the bill allows emissions limits on fossil-fuel
plants to be lifted if there is a risk of an electricity
shortfall, Malcolm Dowden, a consultant at Charles Russell LLP,
said in an interview.
Energy Secretary Ed Davey said today he wants a second
reading of the bill before Christmas. The government wants the
bill to clear its final legislative step in 2013, with the first
low-carbon projects supported under the legislation beginning in
the following year.
To contact the reporter responsible for this story:
Sally Bakewell in London at
Sbakewell1@bloomberg.net
To contact the editor responsible for this story:
Reed Landberg at
landberg@bloomberg.net
