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Energy firms to get new low-carbon incentives Energy firms to get new low-carbon incentives
(about 1 hour later)
By John Moylan Business correspondent, BBC News
The government is to guarantee prices for electricity to persuade the private sector to invest in new low-carbon forms of generation.The government is to guarantee prices for electricity to persuade the private sector to invest in new low-carbon forms of generation.
The move is part of a range of proposals to be outlined later by Energy Secretary Chris Huhne.The move is part of a range of proposals to be outlined later by Energy Secretary Chris Huhne.
The aim is to ensure the UK has the electricity generating capacity it needs, while still meeting its climate change targets. Mr Huhne dismissed reports that consumers' electricity bills could rise by £500 a year as a result of the measures as "absolutely bonkers".
But consumers are likely to face much higher energy prices. He said prices would rise by less than they would without the measures.
Some estimates suggest the reforms could add hundreds of pounds to bills. Higher prices
Price comparison website uSwitch has estimated that bills will rise by £500 a year.
But Mr Huhne told the BBC that the average electricity bill of £500 a year would rise by £160 a year over the next 20 years, and if the new measures were not put in place, bills would rise by £190 a year.
The industry regulator Ofgem has estimated that bills could rise by as much as 25% over the coming decade.
David Porter, chief executive of the Association of Electricity Producers said: "Politicians and the regulator seem to recognise that the huge cost of doing this will push up customers' bills.
'Best deal'
The aim of the new framework is to ensure the UK has the electricity generating capacity it needs, while still meeting its climate change targets.
"We've got to replace about a quarter of our ageing coal and nuclear power stations anyway, and since energy companies are not the Salvation Army and are going to have to make a return if they are going to make this investment, there is going to be a rise in energy bills," Mr Huhne said.
He said the new framework would provide certainty that would "remove the risks of being buffeted by oil and gas [price] shocks".
This certainty "would ensure consumers get the best possible deal by encouraging more competition into the marketplace", he added.
Energy gapEnergy gap
In the next 10 years a quarter of our generation capacity is due to come off line.In the next 10 years a quarter of our generation capacity is due to come off line.
Roughly half of that is due to tightening environmental regulation. But many of Britain's ageing nuclear plants are also due to close.Roughly half of that is due to tightening environmental regulation. But many of Britain's ageing nuclear plants are also due to close.
The government wants industry to build a new generation of power plants using low-carbon technologies including renewables, nuclear, and clean coal and gas.The government wants industry to build a new generation of power plants using low-carbon technologies including renewables, nuclear, and clean coal and gas.
So it is proposing a range of incentives to give investors the certainty they will need, saying its plans represent the biggest reform of the electricity generation market in 25 years.So it is proposing a range of incentives to give investors the certainty they will need, saying its plans represent the biggest reform of the electricity generation market in 25 years.
For low carbon generation - including nuclear - it is proposing a feed-in tariff with long contracts. This will give investors a guaranteed price for their electricity.For low carbon generation - including nuclear - it is proposing a feed-in tariff with long contracts. This will give investors a guaranteed price for their electricity.
There would be extra support for what are described as younger technologies like offshore wind and wave power.There would be extra support for what are described as younger technologies like offshore wind and wave power.
But the government maintains that there will be no specific subsidy for nuclear.But the government maintains that there will be no specific subsidy for nuclear.
There will also be capacity payments to ensure there is back-up plant available on those days when the wind doesn't blow.There will also be capacity payments to ensure there is back-up plant available on those days when the wind doesn't blow.
There will be disincentives too. These will include support for the carbon price - which would make it expensive to generate power using dirty coal.There will be disincentives too. These will include support for the carbon price - which would make it expensive to generate power using dirty coal.
And an emissions performance target will also ensure there is no new unabated coal-fired electricity generation.And an emissions performance target will also ensure there is no new unabated coal-fired electricity generation.
Higher bills
But the government's reforms are expected to result in significantly higher energy bills.
The industry regulator Ofgem has estimated that bills could rise by as much as 25% over the coming decade, adding hundreds of pounds to the average household spend.
David Porter, chief executive of the Association of Electricity Producers said: "Politicians and the regulator seem to recognize that the huge cost of doing this will push up customers' bills.
"Everyone involved has to be candid about that."
Consumer groups have already voiced concerns that the price of building all the new capacity will simply be passed on to customers bills.
But writing in the Daily Telegraph, Chris Huhne said that the cost of electricity would be lower as a result of the reforms than it would otherwise have been.
"By providing greater certainty, we can encourage new market entrants and financial investors, reduce the cost of capital, and provide low carbon electricity at lower cost than under present policies," he said.
Environmental groups are likely to welcome the plans.Environmental groups are likely to welcome the plans.
In a statement, Friends of the Earth described the reforms as a once-in-a-generation chance to set energy policy for the next 20 years, adding that "it's crucial the government makes the right decisions to ensure renewable power thrives instead of locking us into a dangerous high-carbon world."In a statement, Friends of the Earth described the reforms as a once-in-a-generation chance to set energy policy for the next 20 years, adding that "it's crucial the government makes the right decisions to ensure renewable power thrives instead of locking us into a dangerous high-carbon world."