London (Platts)--23Nov2012/603 am EST/1103 GMT

The UK government announced Friday that low carbon electricity spending under the Levy Control Framework will rise to GBP7.6 billion ($12.1 billion) in real terms in 2020/21 from GBP2.35 billion this year.

The announcement by Energy and Climate Change Secretary Edward Davey is one of a number of decisions agreed by the coalition government, which, he said, clear the way for the introduction of the Energy Bill next week, and will deliver "a clear, durable signal to investors."

"This is a durable agreement across the Coalition against which companies can invest and support jobs and our economic recovery. The decisions ...mean we can introduce the Energy Bill next week and have essential electricity market reforms up and running by 2014 as planned," Davey said in a statement issued by the Department of Energy and Climate Change (DECC).

"They will allow us to meet our legally binding carbon reduction and renewable energy obligations and will bring on the investment required to keep the lights on and bills affordable."

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Davey also announced the creation of a government-owned company to act as a single counterparty to give investors confidence to enter into new long-term Contracts for Difference for low-carbon projects. The DECC said the counterparty will have levy-raising powers to enable it to raise funds from suppliers to meet its costs, including payments to generators.

Analysts at Nomura said, however, that it is not clear to what degree liabilities will be guaranteed by the government itself, which they said will be key.

The government has also agreed on providing powers to introduce a capacity market, allowing for capacity auctions from 2014 for delivery in the winter of 2018/19, if needed. The DECC added that the government is also seeking to provide certainty to gas investors and that a Gas Generation Strategy will be published alongside the finance minister's Autumn Statement.

Finally the government will introduce an amendment during the passage of the Energy Bill to take powers to set a decarbonization target range for 2030 in secondary legislation. A decision to exercise this power will be taken once the Climate Change Committee has provided advice in 2016 on the fifth Carbon Budget which covers the corresponding period, the DECC said. In the interim, the government will issue guidance to National Grid setting out an indicative range of decarbonization scenarios for the power sector in 2030 consistent with the least cost approach to the UK's 2050 carbon target.

The measures, Davey said, will help to diversify the UK's power generation mix, while meeting the government's fuel poverty, energy and climate change goals in a way that is consistent with economic recovery whilst minimizing the impact on consumer bills.

With a fifth of the UK's generating capacity due to be decommissioned this decade, reforms are needed to provide certainty to investors to move forward with GBP110 billion in investment in new infrastructure to ensure stable electricity supply and continue the shift to a diverse, low carbon economy as cheaply as possible, the DECC said.

--Martin Burdett, martin_burdett@platts.com
--Edited by Jonathan Fox, jonathan_fox@platts.com

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