U.K. energy department to invest $167 billion in infrastructure

The U.K. Department of Energy & Climate Change plans to invest up to $167.7 billion energy infrastructure investment and support up to 250,000 jobs by 2020.

The potential scale of investment, growth and job opportunities available in the energy economy was made clear as cabinet ministers announced new details of reforms vital to keeping the lights on and emissions and bills down.

With around a fifth of Great Britain’s aging power plants due to close over the coming decade and further closures in the 2020s, the country needs investment in energy infrastructure. The Energy Bill currently before Parliament introduces vital market reforms to bring this about.

The Energy Bill was backed at the House of Commons third reading by an overwhelming majority of MPs — 396 in favor and 8 against. It is now in the House of Lords.

Chief Secretary to the Treasury Danny Alexander and Energy and Climate Change Secretary Edward Davey announced more details about the reforms to give developers and investors the confidence to progress with new projects.

“No other sector is equal in scale to the British power market, in terms of the opportunity that it offers to investors, and the scale of the infrastructure challenge, Davey said. “Our reforms will renew our electricity supply, attracting up to $167.7 billion investment in a mix of clean, secure power and demand reduction, and will support up to 250,000 jobs up and down the supply-chain.”

Davey said the Capacity Market would incentivize investment in new gas plant and other flexible capacity to maintain an adequate supply margin for 2018 onward.

Ofgem and National Grid will consult on possible steps they could take to ensure that mothballed power plant or demand response is available if needed in the middle of the decade. This will mean the public can continue to enjoy a reliable supply of electricity,” he said.

The Department of Energy & Climate Change also announced strike prices for renewable energy technologies, which aim to make the U.K. market more attractive for developers of wind, wave, tidal, solar and other renewables technologies.

“This will help boost home-grown sources of clean secure energy, and enable us to decarbonize the power sector, with renewables contributing more than 30 percent to our mix by the end of this decade, he said. “Our reforms will keep the lights on and emissions down, and will save consumers money on their bills. The result — low-carbon, affordable and reliable power for the long-term.”

Capacity Market

The U.K. government will run its first Capacity Market in 2014. This will ensure sufficient electricity supplies from winter 2018 by attracting necessary investment in new and existing power generation, as well as other forms of capacity such as demand response.

Capacity agreements, alongside long-term Contracts for Difference (CfDs) for low-carbon power, will boost supplies into the next decade and protect consumers against volatility in market price.

Similar capacity markets already operate in the USA and a number of EU countries, and one is being introduced in France.

Supply Margins

Ofgem updated their assessment of supply margins in the middle of the decade, anticipating that the buffer between peak demand and supply could be lower than previously expected.

This is in part due to the low price of coal that has led coal-fired power stations in the U.K. to operate more often, whilst gas has become uncompetitive, leading plants to close. This surge in the use of coal has also brought forward the point at which the dirtiest plants are required to close in compliance with environmental standards.

In response, Ofgem and National Grid will each consult on extending existing arrangements they use to balance supply and demand in the short term, and to ensure enough power is available when needed. This could include contracting for additional reserve in the form of currently mothballed plant or incentivizing flexible demand response.

Renewable Strike Prices

Also announced today are details of the proposed strike prices that will be available from 2014 – 2019 for renewable electricity including onshore and offshore wind, tidal, wave, biomass conversion and large solar projects. This support comes from within the $11.6 billion Levy Control Framework, as previously announced.

Strike Prices effectively remove price volatility risk for electricity generated from low-carbon sources, under new long-term CfDs being established by the Energy Bill. This ensures greater certainty to generators and therefore a better deal to consumers.

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