Britain's liberalised electricity market is being reformed to meet long term climate change goals by encouraging low-carbon generation such as nuclear power.
Some £110 billion ($170 billion) in new power plants is required in the UK to replace ageing and outdated power plants by 2020 - ahead of a possible doubling of electricity demand by 2050. Existing market conditions in the competitive market mean that power companies would be compelled to meet those needs using fossil fuels, which is in stark contrast to government targets to have 30% renewables by 2020 and cut emissions by 80% by 2050.
To solve this problem, energy and climate change secretary Chris Huhne wrote in the Daily Telegraph, "The true costs of unabated fossil fuels - and the benefits of low carbon electricity - have to be captured in policy."
The UK government is therefore consulting on a new market based on "four interlocking policy instruments," which should provide "greater assurance of decarbonisation at the same time as lower bills in the long run."
The plans include support to maintain a minimum price for carbon dioxide emissions. Scenarios for the short term are based on £20, £30 and £40 ($31, $46 and $62) per tonne, but the real figure would be set in 2011 as part of the country's budget. In the longer term all the scenarios see prices rise to £70 ($109) per tonne by 2030.
Long term feed-in tariffs would provide certainty of income for companies building low-carbon power plants. Under a 'contract for difference' arrangement the government could top up revenues if the wholesale power price dips below the tariff level. It would also have a right to 'claw back' the money if prices are high.
Capacity payments are proposed as a way to ensure security of supply as 'intermittent and inflexible' low-carbon generation increases.
Lastly, an 'emissions performance standard' would limit how much carbon the most polluting power plants could emit. This "will reinforce the existing requirement that no new coal is built without demonstrating carbon capture and storage technology."
"Taken together these reforms can unlock private investment on an unprecendented scale," said Huhne.
Supporters of plans for new nuclear in Britain have called for such a reorganisation of incentives for several years. This reached its peak this month when the three companies wanting to build new nuclear power plants emphasised together the "absolutely key" nature of reform.
Alan Raymant of Horizon Nuclear Power welcomed the proposals, noting that nuclear power has never needed a subsidy, "just a level playing field which isn't currently provided by a market designed in another era."
For EDF Energy, Vincent de Rivaz said, "The carbon price mechanism and electricity market reform are two distinct steps which encourage investment by putting values on decarbonisation and security of supply."
"The floor price can start low to encourage investment and ensure a smooth transition. It needs to reach a meaningful level in the years immediately following 2018, when the new low carbon generation comes on stream. It should then strengthen further to 2030, when we need to have largely decarbonised electricity," said de Rivaz.
Consultation on the proposals is now open and will result in final recommendations to be published in an energy white paper in March or April 2011.
Researched and written
by World Nuclear News