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U.K.’s Davey Touts Energy Reform in Bid to Pacify Areva, Siemens

Britain’s electricity-market reforms will provide certainty for investors in low-carbon power, Energy Secretary Ed Davey said after Siemens AG (SIE) and Areva SA (AREVA) complained that the policies risked “stranding” investments.

Contracts for difference, which set long-term prices for power, will provide the “predictable revenue streams” needed to commit to big projects, Davey said today at a conference in Edinburgh, acknowledging that “the uncertainty of the current arrangement” has put global fund managers off investing.

Davey this month received a letter from seven companies that employ 17,500 in Britain’s energy industry. The group, including Siemens, Areva and Vestas Wind Systems A/S (VWS), said they had reassessed “political risk in the U.K.” following delays, reports of government discord and speculation that contracts for difference would be rationed.

“These investments have long time scales and carry a risk of stranding if the present policy focus on decarbonization and green growth changes,” they said in the letter.

Britain is overhauling its electricity market in a bid to expand low-carbon generation as it retires aging power stations. The U.K. needs about 110 billion pounds ($176 billion) in low- carbon investment by 2020 to replace plants and upgrade grids, according to the government.

Carbon Capture

Contracts for difference “can help smooth out market volatility, not only minimizing costs to the consumer, but also making investment and financing decisions easier,” Davey said. He also announced the award of 20 million pounds in funding for a carbon capture and storage demonstration project in Scotland, developed by Doosan Power Systems Ltd. and Howden Group Ltd.

The award is part of a four-year, 125 million-pound government plan to develop cheaper CCS technology as it seeks to trap emissions from power generation and industry for permanent underground storage.

The British and Scottish administrations will also study obstacles to renewable-energy projects around Scotland’s islands, where developers are concerned a lack of grid connections may hamper investments, Davey said.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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