Utilities to issue warning on carbon price

Tuesday, October 26, 2010

Britain’s “big six” energy companies will this week warn Chris Huhne, secretary of state for energy, that the government’s proposed “floor price” for carbon emission permits is not enough of an incentive for them to invest in new nuclear power stations.

Executives from the companies, including Centrica, EDF Energy and Scottish Power, now owned by Iberdrola, are due to make their views clear at a dinner with Mr Huhne on Wednesday.

The industry has reached a consensus position with all companies agreeing that some form of additional incentive is required. Options range from a feed-in tariff to guarantee the price for low-carbon electricity to payments to companies as reward for having available generation capacity.

The government has already said it is seeking to put a floor under the price of carbon dioxide permits under the European Union’s emissions trading scheme. But executives believe if that were to be the only incentive the floor would have to be set at a pretty high level, with estimates ranging between €80 and €90 a tonne of carbon. The companies argue any floor price should start at a relatively low level and then gradually step up towards a level of about €35 a tonne of carbon. Prices are currently hovering at around €15 a tonne.

Volker Beckers, the chief executive of RWE npower, the German-owned energy supplier that has teamed up with fellow German Eon to build new reactors, told the Financial Times last week that the government should not “discriminate different technologies against each other” but should ensure there is a “level playing field” for all. He wants the renewables obligation, which supports wind power, to be expanded to a low-carbon obligation that would include nuclear.

Mr Huhne last week gave the green light for the development of new nuclear reactors but vowed there would be no public subsidy. Mr Beckers said he did not think of the renewables obligation as a subsidy.

“It is an obligation to a supplier to comply with environmental legislation . . . in other words, you either invest or you pay,” he said.

Two consultations – one on the carbon price floor and another on electricity market reform – are expected later this autumn. Mr Beckers said that RWE npower would make its supplier decision in the first quarter of next year and if there was “uncertainty still” it would “be very difficult”.

His comments echo those of Vincent de Rivaz, chief executive of EDF Energy, which owns 80 per cent of British Energy, who called last week for “a timely consultation on how the government will implement its stated policy to provide a carbon price floor”. “We also need progress on reform of the electricity market where EDF Energy has proposed low carbon capacity payments to support security of supply.”

Mr Huhne will meet other industry stakeholders when he chairs the next meeting of the Nuclear Development Forum, which advises the government’s Office of Nuclear Development, on Thursday.

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