UK energy and climate change minister Chris Huhne said the measures were intended to give a green light to investors in low carbon power generation. He acknowledged that a competitive market cannot deliver security of supply, affordability and low carbon energy on its own.
Greater long-term certainty to encourage investment in wind and nuclear is to come through a carbon price floor, which may start at £20 per tonne but be ratcheted up to £30 and £40.
Long-term contracts for low carbon generation will, said Huhne, make clean energy investment more attractive.
A proposed ‘contract for payment’ feed-in tariff will result in a top-up payment to low carbon generators if wholesale prices are low. However, it will claw back money for consumers if prices become higher than the cost of low carbon generation.
A capacity mechanism will ensure that an adequate safety cushion of generating capacity exists as the amount of variable wind and inflexible nuclear generation increases.
Additionally, an emissions performance standard will reinforce the existing requirement that no new coal power stations can be built without carbon capture and storage (CCS).
A consultation period will now take place, with a White paper published in March 2011. The measures could become law in 2012.
All of this set is against a background where a quarter of Britain’s ageing coal and nuclear power stations are due to be replaced in the next ten years at a cost of £110 billion, of which £75 billion–worth will have to be power stations, most of them low carbon.
Renewables UK’s Gordon Edge said that contracts for differences were ‘a relatively untried system’ pointing out that the existing Renewables Obligation had already ‘brought 20,000MW of wind energy applications onshore’.