Plans for £110bn investment into electricity generation in the UK have been unveiled in a white paper by the Energy Secretary Chris Huhne.
The radical plans aim to tackle the current challenges facing the electricity market to deliver the biggest reforms since privatisation, which Mr Huhne said will end '25 years of policy dithering.'
The reforms include long-term price contracts with domestic nuclear power plants and offshore wind farms and measures to increase low-carbon electricity generation, including renewable energy and carbon capture and storage (CCS) to make electricity prices more stable.
Unveiling the plans, Chris Huhne said: 'We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts.'
Mr Huhne explained how the plan would help 'guarantee the future security of supply' and insure against fossil fuel price shocks. The white paper comes within days of the British Gas announcement that domestic tariffs will rise for customers, which the company has blamed on the increase in cost of imported gas, due to Britain now importing almost 50 per cent of its gas.
Speaking about the recent rises in utility bills from British Gas and Scottish Power Mr Huhne said the white paper would provide insurance for customers 'against that sort of shock.'
He said: 'Without reform, our reserve capacity - the power plants we can call on when demand surges - will fall to uncomfortable levels. We would face a much higher risk of blackouts by the end of this decade. We would also be locked into a worrying reliance on fossil fuel imports, putting us at risk of rising and volatile prices. Consumers could end up paying more.'
In a statement to parliament, Chris Huhne delivered the plan covering five key areas of reform, as well as launching the Renewables Roadmap, to accelerate the UK's deployment and use of renewable energy.
1. The new Carbon Price Floor - As announced in the Budget, this is aimed at putting a 'fairer' price on carbon, to reduce uncertainty for investors, and provide a stronger incentive to invest in low-carbon generation.
2. Promoting low-carbon electricity - In conjunction with the Carbon Price Floor these measures will provide additional clarity and certainty for investors to incorporate low-carbon objectives in the 'future energy mix.' These include the introduction of a new system of long-term contracts, to remove uncertainty for both investors and consumers, and make low-carbon energy more attractive. Contracts for Difference will be introduced for all forms of low-carbon generation, to lower the cost of capital, and allow clean technologies with high-up front and low long-run costs to compete fairly against traditional fossil fuels.
3. Emissions Performance Standard introduced - Set at 450g CO
2/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, this will also ensure necessary short-term investment in gas can take place. Mr Huhne said: 'CCS is a key part of our plan to decarbonise electricity generation. It is the only technology that can potentially reduce emissions from fossil fuel-fired power stations by as much as 90 per cent.'
4. New contracting framework for capacity - To ensure security of supply in the future, the new contracting framework will aim to change the way back-up electricity is secured. The Capacity Mechanism could mean centrally procuring capacity, which is then set aside from the market and used only when it is needed. Or it could mean a market-wide mechanism, in which all providers offering reliable capacity are rewarded. Mr Huhne added: 'Shifting or cutting demand for electricity is likely to be more cost-effective than simply building more and more power plants. It complements our work to drive down demand through energy efficiency measures such as the Green Deal and Smart Meters.'
5. New arrangements to deliver the reforms - Mr Huhne also announced that in order to roll out the reforms there will need to be transitional arrangements put in place in order to ensure there is no hiatus in investment while the new system is set up.
Speaking about the far-reaching plans, Mr Huhne concluded: '[The reforms] will put in place the framework to deliver the capacity and demand side response we need to guarantee future security of supply.
'Six energy companies supply around 99 per cent of customers in the UK. Alongside action by Ofgem to improve liquidity, these reforms will boost competition within the market, and they will make the UK a magnet for low-carbon investment, generating jobs and growth. This will help energy intensive industries. However, we are also committed to bringing forward a package of measures to ensure our continued international competitiveness.'
Mr Huhne added that the new plans would deliver with the 'least cost to the consumer, with bills for households and businesses likely to be lower and less volatile over the period to 2030 than if we had left the market as it is. They will enable us to build a flexible, responsive electricity system. One powered by a diverse and secure range of low-carbon sources. En route to a cleaner, greener future. Insuring us against fossil fuel price shocks. Ending 25 years of policy dithering. Keeping the lights on - and bills down.'
The Renewables Roadmap
Mr Huhne also launched the Renewables Roadmap, which is an action plan to accelerate the UK's deployment and use of renewable energy fourfold by 2020 while driving down the cost over time.
Mr Huhne said: 'For too long, discussion about renewable energy has focused on barriers. Now, for the first time, we have set out a detailed step-by-step plan to overcome those obstacles. The Roadmap identifies eight technologies that have the greatest potential for the UK - such as offshore wind, where we have abundant natural resource and already have the world's largest market.'
Subject to further value for money assessment, DECC is setting aside up to £30 million over the next 4 years to support technology development programmes to improve the efficiency and reduce the costs of offshore wind.
A task force will also be set up to drive the work to achieve cost-competitive offshore wind. The recently published Microgeneration Strategy outlines the actions that the Government is taking to tackle the non-financial barriers which could prevent microgeneration from realising its full potential.
Together, the Renewables Roadmap and the Microgeneration Strategy aim to reduce costs for consumers, and enable mature renewables to compete against other low-carbon technologies in the longer term.
For more information:
Renewables Roadmap Microgeneration Strategy
Statement by Chris Huhne
