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White Paper prepares way for £110bn energy infrastructure investment

13 Jul 11 The government has published proposals to reform the electricty market that will pave the way for a £110bn bonanza for contractors working on the provision of energy infrastructure.

Energy secretary Chris Huhne
Energy secretary Chris Huhne

The document, which paves the way for legislation, sets out the needs for a capital investment of £110bn in energy generation over the next 10 years.

This investment is equivalent to 20 new power stations, said energy secretary Chris Huhne, and twice the rate of investment seen in the past decade.

The Electricity Market Reform White Paper sets out key measures to attract investment and create a secure mix of electricity sources including gas, new nuclear, renewables and carbon capture and storage. The government also hopes to minimise the inevitable fuel price rises required to pay for all this.

The Renewables Roadmap published alongside this outlines a plan to accelerate renewable energy deployment – to meet the target of 15% of all energy by 2020 – while driving down costs.

Subject to further value for money assessment, the department of energy and climate change (DECC) is setting aside up to £30m over the next four years to support technology development programmes to improve the efficiency and reduce the costs of offshore wind.

The government has asked a new industry-led task force to reduce the costs of offshore wind to £100/MWh by 2020. That level of cost reduction will make it possible to deliver up to 18GW by 2020 and open up the 30- 40GW of low carbon generation that will be necessary in the 2020s to keep the UK on track to deliver the 4th Carbon Budget.

Mr Huhne said: “We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts.

“This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant.

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“We have consulted widely and we believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources right here in the UK.

“A new generation of power sources including renewables, new nuclear, and carbon capture and storage, along with new gas plants to provide flexibility and back-up capacity, will secure our electricity supply as well as bring new jobs and new expertise to the UK economy.”

The paper proposes a number of tools to encourage private sector investment. Changes announced include building on the carbon price floor announced in the Budget, the introduction of long-term contracts to reduce uncertainty for investors in renewable energy, placing a limit on the emissions from fossil fuel energy plants and a new contracting framework for electricity.

The Civil Engineering Contractors Association described the white paper as “a welcome sign of the government’s commitment to tackling the long-term issues facing energy provision in the UK”.

CECA said that the reforms would not only provide a steady supply of secure energy for the future but will also provide a much needed boost for the struggling construction industry.

CECA director of external affairs Alasdair Reisner said: “Measures which offer greater certainty for private sector investors can unlock large quantities of private sector investment in infrastructure, a crucial point considering the state of public finances. The energy market envisaged in this plan should go a long way towards achieving a secure long term future for energy consumers in the UK and a solid foundation for future economic growth, not to mention going some way to aiding the decarbonisation of the UK economy.

“Importantly, the plan is also a welcome fillip for the construction industry, potentially providing jobs and boost to GDP. It’s also important to realise that this investment will be targeted in regions of the UK that have hitherto missed out from big projects.”

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