U.K. Nuclear Push Gains With Bill to Revamp Power Market

U.K. lawmakers began considering legislation today that will revamp electricity markets, part of a 110 billion-pound ($176 billion) effort to spur construction of nuclear, gas and wind power plants.

“The Energy Bill will attract investment to bring about a once-in-a-generation transformation of our electricity market, moving from predominantly a fossil-fuel to a diverse low-carbon generation mix,” Energy Secretary Ed Davey told lawmakers in Parliament today to introduce the legislation.

Prime Minister David Cameron’s government is seeking to boost incentives for utilities to maintain stable power supplies as the nation retires coal- and oil-fired stations responsible for 14 percent of generation capacity by 2015. Electricite de France SA and Hitachi Ltd. are weighing investments in new atomic stations in Britain, one of three western European nations sticking with the technology after last year’s nuclear disaster in Japan.

“We can’t claim that the Energy Bill is transformative, and there are still many impediments to investment at scale in offshore wind and even gas,” said James Cameron, chairman at Climate Change Capital Ltd. “But at last we have a framework with long-term commitments. Now we need to begin investing in the infrastructure of a modern resource-efficient economy where the real prize is energy at very low operating cost.”

The bill includes contracts guaranteeing power prices for companies that build new plants. Davey announced plans to exempt energy-intensive industries from costs arising from the measures.

Liberal Democrat

Publication of the bill caps weeks of negotiations between Cameron’s Conservatives and Liberal Democrat Davey, fueling speculation the proposals were causing a rift within government. Cameron’s party has emphasized concerns about the costs of green measures on businesses and consumers, favoring gas, while Davey wants more incentives for renewable energy.

“Two parties who have had their disagreements have come together with an energy policy,” Davey said, adding that the government will support exploitation of shale gas and publish a gas generation strategy with the Dec. 5 autumn statement.

Attention on energy prices has intensified after Centrica Plc’s British Gas and SSE Plc boosted consumer charges for gas and power. The British Chambers of Commerce today called on the bill to limit the impact on businesses already hurt by rises. DECC said today it’s considering separate measures to pay homes, industry and business for curbing power use.

Renewables cost the average home about 20 pounds a year with recent bill rises due to wholesale gas prices, Gaynor Hartnell, chief executive officer of the Renewable Energy Association, told BBC News today.

Costs Down

“We all consume electricity and should be paying for the costs of it,” she said. “I don’t think we can assume that for evermore energy will be cheap,” she said, adding that the costs of renewables are coming down.

Davey said today the net effect of government policies on bills is “downwards”. Last week, he said the changes will triple the cost of renewable energy charged to the bills of consumers to 7.6 billion pounds in 2020. That would account for about 7 percent, or 95 pounds, of home bills in that year. The plans enable Britain to hit clean energy targets and support 250,000 jobs, he said.

Davey dropped efforts to add a 2030 target for cutting emissions in the power industry, criticized by environmental groups WWF and Greenpeace. Caroline Flint, Shadow Energy and Climate Change Secretary for the opposition Labour Party, said today in Parliament she would work to put a decarbonization target “on the face of the bill.”

Clean Energy

First proposed by government in March 2010, the changes were designed to secure clean energy at a lower cost by reducing the capital costs for the projects.

Today’s proposals may have had the opposite effect, according to Bloomberg New Energy Finance. The London-based research group estimates that large-scale, U.K. project funding declined 53 percent to $5.04 billion last year from $10.65 billion in 2009.

The proposals include setting up a so-called capacity market that would ensure demand is met with payments to producers for back-up supplies. The government is increasingly concerned about the security of power supplies after the regulator Ofgem warned that capacity will tighten, raising the risk of shortfalls from 2015.

Capacity Mechanism

“The most important thing is what the capacity mechanism will be, and we have had nothing on this so far,” Lakis Athanasiou, an independent equity analyst, said by e-mail. “This complacency runs the risk of causing power shortages in the second half of the decade.”

The proposal will also support Britain’s renewal of its nuclear fleet with long-term contracts guaranteeing a price for power, or strike price, also available to renewables such as offshore wind. The bill won’t include the strike prices, which will be set late next year.

The plans for the so-called contracts for difference illustrate the government’s commitment to a “much-needed nuclear revival,” said George Borovas, head of nuclear projects at law firm Pillsbury Winthrop Shaw Pittman LLP. EDF is expected to decide on new reactors in England by the end of this year.

The government plans to exempt energy intensive industries such as steel and cement from costs added by these contracts, Davey will say today. The costs will be levied on suppliers who pass them to consumers. The government will consult on the exemption, which will need European approval, next year.

“Decarbonization should not mean deindustrialization,” Davey will say. “There would be no advantage, both for the U.K. economy and for global emissions reductions, in simply forcing U.K. businesses to relocate to other countries.”

The government aims for the bill to clear its final legislative step known as Royal Assent in 2013, with the first low-carbon projects supported under the legislation beginning in the following year.

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