The U.K.’s Energy Bill that seeks to secure national electricity supply is “unhelpful” to investors and risks reducing spare capacity, said Liberum Capital Ltd.
The bill published yesterday sets out plans for a so-called capacity market to pay generators for providing power at times of peak demand. The government won’t make a final decision on payments until 2014, London-based Liberum said in a report.
“Our view is that capacity payment details in this Energy Bill are unhelpful to investors,” said Dominic Nash, a Liberum utilities analyst. “We see the chance of the power markets tightening before new capacity is developed,” he said.
Britain is seeking to secure electricity supplies as aging coal-fired power plants are due to close by 2015 under European Union environmental laws and nuclear plants are decommissioned. Regulator Ofgem says there’s a risk of shortfalls from 2015.
The government wants a capacity market to spur investors to provide back-up gas-fired power stations as it pushes to reduce greenhouse gas emissions by expanding renewable generation that provides only variable levels of power depending on the weather.
Liberum, which sees half of capacity shutting by the early 2020s, said lack of clarity on incentives may limit construction of gas-fired stations. SSE Plc (SSE) said Nov. 14 it would stall a gas plant project in Wales until it got more details on U.K. policy.
“There will not be a decision until 2014, which means that if no new investments come forward until then, we could be looking at 2017 before meaningful new gas-fired power stations will be added to the U.K. power system,” Nash said.
Environmental group Greenpeace criticized U.K. policy for spurring “new gas stations that we don’t need” and that will add to electricity charges. Energy Secretary Ed Davey yesterday said the bill supports renewables, nuclear, gas and carbon capture and storage. The government estimates the capacity market may add 14 pounds ($22) a year to domestic bills.
The first auction of current or new capacity may begin in 2014 for delivery from 2018 depending on “evidence of need.”
Ministers will decide on the capacity auctioned and will offer it four years ahead of delivery, while winners must provide power when needed in return for steady payments.
New plants will be able to get contracts of as long as 10 years, with one-year contracts for current plants. The U.K. plans to publish design proposals for the market in May.
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