Climate secretary says plans will allow the UK to cut emissions and lead to a 'seismic shift' towards clean energy
Low-carbon technologies such as renewable energy will be the "dominant" form of energy generation by 2030 under government plans for the largest shake-up of the UK energy sector since privatisation in the 1980s.
Announcing the proposals today, the energy and climate secretary, Chris Huhne, said it would lead to a "seismic shift" towards cleaner energy.
The government says that more than �110bn of investment is needed in new power stations and grid upgrades over the next decade ? double the investment over the last decade. Around a quarter of the UK's generating capacity needs to be replaced by 2020, equivalent to around 20 large power stations.
Huhne said the reforms aimed to boost investment in low-carbon energy and allow the UK to meet its ambitious target of cutting emissions by 34% by 2020.
The changes will establish a minimum "floor" price for carbon and long-term contracts that give investors a guaranteed price for providing energy ? in addition to setting a tax on fossil fuels. The government has not announced what the floor price will be.
The measures also include subsidies on immature renewable technologies such as offshore wind and wave power, but stipulate that the nuclear industry will not receive any direct funding. In addition, the plans provide for a roll-out of energy-saving devices such as smart meters.
The government will also consult on the level of a so-called emissions performance standard (EPS) for power stations which would set a limit on the level of CO2 emissions they are permitted to produce. In his statement to the House of Commons, Huhne referred to this as "a back-stop to limit how much carbon any new coal-fired power stations emit".
The plan though means that a key Conservative pre-election pledge on the environment will be axed, as reported by the Guardian earlier this week. The government's plan recommends that an EPS should be as high as 600g per kilowatt hour ? although it said a tougher limit of 450g was also an option. To meet a 600g limit, new coal plants would have to fit experimental carbon capture and storage (CCS) technology to no more than a quarter of a new coal plant.
The Conservatives' pre-election pledge promised a limit which would require two-thirds of new coal plants to be covered, equivalent to about 400g. The government is concerned that a very tough EPS would discourage companies from building new coal plants to demonstrate CCS technology.
If the reforms survive a two-month consultation period that opens today, they will be implemented in an energy bill by the end of 2011.
Huhne told the Commons: "We have a once-in a generation chance to rebuild our electricity market, investor confidence and our power plants. This will be seismic shift, securing investment in cleaner, greener power and ensuring low-carbon, affordable power for decades to come."
Critics argue that the cost of implementing the proposals will be passed on to consumers in the short term in the form of higher bills. Household energy bills could rise by �500 in the near term as a result of the reforms, according to the energy price comparison website, uSwitch. "The huge cost of doing this will push up customers' bills," said David Porter, chief executive of the Association of Electricity Producers. "Companies have got to invest a lot of money and that will find its way to people's bills, although every effort will be made to minimise that."
Huhne admitted that energy prices will initially rise ? but emphasised that by 2030, the price will be lower than it would be without any reform.
Green campaign groups welcomed the reforms: "The future is electric ? and harnessing the UK's massive potential to produce much more green electricity will create jobs, reduce our reliance on overseas oil and help us slash climate-changing emissions," said the Friends of the Earth's climate change campaigner, Tony Bosworth.
"It is widely recognised that current market agreements are completely inadequate to provide a near-decarbonised power sector by 2030 in a cost-efficient and environmentally sustainable manner," said Nick Molho, head of energy policy at WWF-UK.
Martin Grant, managing director of engineering firm Atkins' energy business, said: "A floor price for carbon will give fresh confidence to the UK's clean energy market and facilitate project investment which in turn will encourage the UK's expert engineering and design sector to boost its nuclear and renewable energy skills."
The proposals have also been supported by the UK Energy Research Centre. "The government appears to have grasped the nettle and proposed radical reform that takes on the challenges of low carbon, adequacy of investment, reliability and affordability," said Jim Skea, research director.
The reforms build on recommendations made by the government's Committee on Climate Change this month, which recommended cutting emissions from the power sector by around 90% by 2030. It also suggested that "current market arrangements are highly unlikely to deliver required investments in low-carbon generation".
Huhne admitted on Wednesday that the government's much-touted green investment bank could begin life as a scaled-back "green fund" that would be unable to raise finance by issuing green bonds. But he insisted that the government was committed to setting up a fully functioning bank.
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