LONDON (Reuters) - The government aims to reform the energy market and create a one billion pound "green" bank to encourage investment in expensive low-carbon power, according to the annual Budget report.
From the five policy packages published by energy regulator Ofgem last month, the government ruled out the most lightly regulated option of setting a minimum carbon price and most heavily regulated option of a centralised buyer.
Ofgem called for regulation reforms away from a market-led approach and said the current system would not encourage the hundreds of billions of pounds needed to replace ageing power plants and bring online new low-carbon generation.
"This Budget will help propel the UK further and faster towards the green industries of the future," Energy and Climate Change Secretary Ed Miliband said.
"The Green Investment Bank, new support for wind turbine manufacturing sites and the first findings of our work to reform the energy market are all critical."
The market reforms were largely welcomed by utilities planning to invest in large energy infrastructure projects, including new nuclear power plants and large scale wind projects.
"It is an important step towards giving investors the confidence to invest the billions of pounds needed in our energy infrastructure," RWE npower Chief Executive Volker Beckers said.
Paul Golby, chief executive and chairman of E.ON UK, said: "The energy proposals put forward alongside the Budget appear to be eminently sensible and it's heartening to see that the government has recognized what we've been saying for some time about the need for a low carbon obligation as part of a dynamic market."
Through a joint venture, E.ON and RWE plan to build up to 6,000 megawatt of new nuclear in Britain by 2025. E.ON is also part of a 2 billion pound London Array wind farm project.
An energy white paper setting out the conclusions of the market reform consultation is expected in spring 2011.
The green investment bank will help fund low carbon electricity generation projects, focussing initially on offshore wind, and seeks to match the government's one billion pounds with at least the same amount from the private sector.
Other green energy initiatives include a 60 million pound offshore wind competition and reviewing how biomass -- natural materials such a woodchips used for burning in power plants -- is supported under the existing renewable funding system.
(Reporting by Kwok W. Wan; editing by Sue Thomas)