Investors call for clarity over shake-up of electricity sector

Consultation on the proposals, which include long-term contracts and a carbon price floor, is currently taking place, but Mark Burke, a partner at Grant Thornton in Leeds, said more details were needed from the Government in order for investors to make decisions on financing future renewable energy projects.

“Everyone will welcome some clarity because investors can’t go forward without knowing what the details of the plans are,” said Mr Burke. “Hopefully, the consultation will provide the transition to more information.”

Energy Secretary Chris Huhne said private-sector investment of £110bn in new power stations and grid upgrades is needed over the next decade to replace ageing plants, to hit climate change targets and to ensure lights do not go out.

A White Paper is due to be published next month following the consultation and legislation is to be completed by 2012.

Plans involve increasing the cost of fossil fuel-based energy by pushing up the carbon price to between £20 and £40 a tonne by 2020.

Top-up payments would guarantee revenues for low-carbon electricity even if the wholesale price falls, and additional financial support would be given for the construction of reserve plants to provide a “safety cushion” as Britain relies on electricity from intermittent sources such as wind.

A cap on CO2 emissions of 450-600 grammes per kilowatt/hour generated, should ensure that all future coal-powered plants use carbon capture and storage.

Although domestic power costs are expected to rise by £160 per household by 2030, the Government says the proposals, which were unveiled in December, will keep bills four per cent lower than they would otherwise have been.

The Government says the plans are the biggest reform of the UK’s electricity market since the 1980s.

The most ambitious proposal is for a “feed-in tariff” scheme using contracts for difference (CfD) to create a stable revenue stream for low-carbon generators, although the plan could be pared back to a simpler model if it proves too complex to be workable.

The Government also intends to set an emissions performance standard, ruling out gas power stations not fitted with carbon capture and storage (CCS) technology, and to create a payment mechanism to encourage investment in flexible reserve capacity.

Carbon floor price plans developed by the Treasury offer three separate scenarios ramping up to either £20, £30 or £40 per tonne by 2020.

Mr Burke said: “Up to now there has been a lot of talk but people have not seen the clarity they need to make long-term investments and they need to understand what financial help and assistance there will be for future projects.”

He added: “The projects that will be completed in the next two or three years will be delivered in the present financial regime but those that are in the planning process are facing uncertainty.”

Yorkshire aims to be at the forefront of renewable energy. Last week, Drax power station revived ambitious plans for a cluster of green power stations in the Humber region by revealing it wants to develop a carbon capture and storage (CCS) project. Drax said it is bidding for European Union money to develop a new 426 megawatt (MW) standalone “clean” power demonstration project in Selby, North Yorkshire, the home of its 4,000MW power station

The Chancellor, George Osborne, announced a five per cent per annum decrease in the Department for Energy and Climate Change’s budget in the Comprehensive Spending Review last October, but allocated £1bn to the Green Investment Bank.

Mr Burke said: “There are no guarantees, but given green energy is a major cornerstone of the Government’s objectives, you don’t feel this is going to suffer from the cutbacks.”