Plans to decarbonise the UK's electricity-generating system have been published by the government. Key measures include establishing a carbon price floor and scrapping the Renewables Obligation Certification (ROC).
Energy and climate-change secretary Chris Huhne claims that the proposals will create a level playing field for low-carbon technologies.
“In the new, reformed UK electricity market, the economics of low carbon will stack up like nowhere else in the world. By 2030, three-quarters of our electricity could be low carbon,” he said.
The creation of a carbon price floor is a key feature of the proposals. It aims to make it increasingly expensive to operate high-polluting power plants, encouraging electricity-generating companies to invest more in low-carbon alternatives.
The plans from the Treasury focus on reforming the climate change levy (CCL), which was introduced in 2001 and is an environmental tax levied on taxable commodities – electricity, gas, solid fuels and liquefied petroleum gas – supplied to businesses and the public sector, and the fuel duty on oil used to generate electricity.
In most cases, fossil fuels used to generate electricity are currently exempt from the CCL. The government plans to remove the exemptions and to tax these fuels based on their average carbon content. It will also reduce the amount of fuel duty that can currently be reclaimed on oil used to generate electricity.
The second key element of the plans is to replace the ROC, which has been the main support mechanism for renewable-power generators since its introduction in 2001, with a “contract for difference” feed-in tariff (FIT) by 2017. Under DECC’s preferred option, the government will agree long-term contracts for low-carbon plants that provide a top-up payment if wholesale electricity prices are below the FIT price, which, if the proposals go ahead, would be set by auction.
The remaining two main planks of the government’s reforms are imposing an emissions performance standard on new fossil-fuel power stations, and providing energy companies with incentives to encourage the building of reserve power plants or the introduction of demand reduction measures.
The Committee on Climate Change, which wants to reduce average emissions from electricity generation from current levels of around 500 gCO2/kWh to around 50 gCO2/kWh by 2030 (p.11), welcomed the government’s proposals, particularly its plans for a FIT combined with long-term contracts and low-carbon generators.
“The basic model proposed is in our view the right one to transform the electricity sector in a way consistent with meeting carbon budgets,” commented chief executive David Kennedy.
The renewables industry, however, criticised the scrapping of the ROC, warning that it would hit investor confidence.
“The ROC has turned the UK into an off shore wind powerhouse, and brought forward 20GW of applications onshore. We shouldn’t be looking to solve a problem that doesn’t exist,” said Dr Gordon Edge, director of policy at RenewableUK.
