Bloomberg News

U.K.’s Davey Plans to Detail Power Prices in December

January 15, 2013

The U.K. plans to set prices for low-carbon power production in December in a bid to lure investment in new plants as older generators shut down.

Network operator National Grid Plc (NG/) is consulting on the so- called strike prices and is due to publish a draft in June or July, Energy and Climate Change Secretary Ed Davey said today in London. Final tariffs are due by year-end, he told lawmakers scrutinizing an energy bill he submitted to parliament in 2012.

The prices are crucial to ensuring investors commit to the 110 billion pounds ($178 billion) of spending that the government says is needed to replace aging power stations and upgrade the electricity grid by 2020. They’ll be written into contracts for difference, agreements guaranteeing set payments for power generators regardless of market fluctuations.

“If we start to see draft strike prices in June, that gives us confidence we’re moving in the right direction,” Keith Anderson, chief executive officer of Iberdrola SA (IBE)’s Scottish Power Renewables unit, told the committee after Davey’s address. Representatives of utilities Centrica Plc (CNA), EON SE and National Grid were also present.

Back-Up Power

The government plans to pass the energy bill by the end of the year. Aside from contracts for difference, the legislation would establish an emissions performance standard limiting carbon output from power plants, and a so-called capacity market, which pays producers for providing back-up electricity when demand peaks and clean-energy generation falls short.

The bill has already sparked debate over its lack of a binding target to cap carbon emissions from the power industry by 2030. The inclusion of a so-called decarbonization target would help reduce political risk associated with long-term U.K. industrial investment, according to a letter to Davey from Siemens AG (SIE), Areva SA (AREVA) and other companies in October.

Davey, a member of the Liberal Democrats, the junior partner in the coalition government, had supported the measure and faced opposition from Chancellor of the Exchequer George Osborne, a Conservative.

“Different parties have different views and in a coalition government you debate those views and you come to a conclusion,” Davey said today. The bill now provides for a decarbonization target to be set in 2016.

Reasonable Compromise

“The proposal that has been put forward is a reasonable compromise,” Sara Vaughan, head of strategy and regulation at power producer EON U.K., told the committee. “Whilst we have not been arguing for a specific decarbonization target, neither would we actually oppose it.”

Centrica agreed with Vaughan’s verdict, saying that it would work with a target if one were set. Scottish Power’s Anderson said he wouldn’t mind if a target were included in the bill as long as it’s “fully costed.”

“It’s much more important to get on with getting the framework in this bill right,” Anderson said. “If a 2030 decarbonization target were submitted, we would work with it. But it’s not a priority.”

In later sessions, representatives from Dong Energy A/S, Ecotricity Group Ltd. and Vestas Wind Systems A/S (VWS) all said they wanted to see a decarbonization target in the bill.

“It would give greater certainty to the supply chain,” said Danielle Lane, Dong’s head of regulatory affairs. “It’s nice to have signposts along the way,” she said, referring to U.K. targets to get 15 percent of energy from renewables by 2020 and to cut emissions 80 percent by 2050 from 1990.

At parliament’s first major debate on the draft law last month, the opposition Labour and Green parties tried and failed to stall it until a 2030 carbon target could be introduced.

Tim Yeo, a lawmaker with the ruling Conservatives who leads parliament’s Energy and Climate Change Committee, has said he’ll attempt to amend the bill to include a decarbonization target at a later date.

To contact the reporters on this story: Sally Bakewell in London at sbakewell1@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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