Energy minister Charles Hendry this week indicated that the government is examining ways to incentivise the construction of new fossil fuel and nuclear power stations.
Hendry said a “capacity payment” would be made to fossil fuel plant developers. He revealed the incentives during an address to the Nuclear Industry Forum in London.
Engineers welcomed the move and said it would give much needed confidence to fossil fuel generators.
Mott MacDonald energy director Simon Harrison said generators such as EdF were reluctant to invest in gas fuelled plant because the widespread roll-out of renewable energy expected over the coming decade will reduce demand for energy generated from fossil fuels .
“There is a difficult situation with shortfall of energy capacity coming up, so we will need combined cycle [gas] plant,” he said.
Gas fired plant can pick up power generation shortfalls more quickly than coal power stations during calm weather when wind turbines generate less electricity.
Harrison said capacity payments would act as back-up for widespread offshore wind capacity over the coming decade.
In the long term, a minumum carbon price will be introduced using a modified Climate Change Levy and will be imposed on carbon emissions. This will penalise producers of carbon emissions, creating incentives for low carbon energy production such as nuclear power.
“It is a political non-starter”
Atkins chief executive Keith Clarke applauded the news.
“Hendry has been very clear. There needs to be a carbon floor [price] and that gives certainty. While the government has yet to work out what that floor is, it will nevertheless give [energy giant] EdF the certainty it needs to invest in new nuclear.”
EdF plans to build new nuclear power stations at Hinkley Point in Somerset and Sizewell in Suffolk.
However, academics warned that plans for a carbon floor price could fail.
“It is a political non-starter,” said University of Birmingham senior lecturer in energy policy David Toke. “The policy is at best confusing. The government can’t influence electricity prices, which are set at the market rate. So he [Hendry] can’t say existing power generation will not be penalised.”