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Pre-Energy Bill announcement

The announcement outlines the creation of a government-owned company to act as counterparty, in order to encourage investors into new long term Contracts for Difference for low carbon electricity projects.

Powers to introduce capacity auctions from 2014 will also be introduced for delivery of capacity in the winter of 2018/19 and offset potential power shortages.

A Gas Generation Statement will also be published alongside the Chancellor’s Autumn Statement to provide certainty to gas investors, says the government.

Much conjecture has taken place concerning the decarbonisation of the electricity grid in recent months.

The latest statement includes an amendment for powers to set a decarbonisation target range for 2030.

The decision to exercise this power will be made after the Climate Change Committee’s fifth Carbon Budget in 2016.

Many in the industry will be disappointed that decarbonisation has not received more support within the Energy Bill.

A total of £7.6 billion of market support will be provided within the Levy Control Framework for low carbon electricity investment, however.

This is a considerable increase in investment, although it remains to be seen how this will be allocated.

The government says this will see the level of energy generated from renewable sources rise to around 30 per cent by 2020, compared with 11 per cent today.

The increase in investment has been welcomed by the Solar Trade Association, but it said clarification is still required for the non-domestic solar power industry under the Renewables Obligation.

Paul Barwell, STA chief executive officer, said: ‘After a damaging period of infighting, today the Government has given a strong signal of its commitment to the renewables industry with clear financial backing.

‘However, we are still waiting to see if non-domestic solar will receive the support it requires to continue to reduce costs. By investing decisively today, our industry can deliver consumers real choice and freedom from rising energy bills before the end of the decade.’

Andrew Horstead, risk analyst for Utilyx, was more critical:

‘The uncertainty hasn’t gone away, in fact delaying the decision on the 2030 [decarbonisation] target until 2016 sends out rather mixed signals.

‘On one hand the Government recognises gas as a flexible supply source, but on the other it suggests that by 2030 there may not actually be a role for gas if we are to decarbonise the power sector. No generator will invest millions of pounds into power plants that may get shut down in the near future.’

Industry experts speaking at recent conferences, including the Heat Conference 2012 and the BSRIA Briefing 2012, have stated that the UK will reach grid capacity in 2016/7.

With 20 per cent of the UK’s power stations due to close in the next few years, many will feel that the Energy Bill will not go far enough in encouraging investment in low carbon power generation.