Power market needs radical reform

By Daniel Fineren

LONDON (Reuters) - Britain's power market must be radically redesigned to spur hundreds of billions of pounds of investment in low-carbon technologies needed to fight climate change and keep the lights on, the heads of two UK utilities said on Wednesday.

Energy regulator Ofgem estimated in October that at least 200 billion pounds of investment is needed over the next 15 years to meet electricity demand and climate change targets and some analysts say the final bill could be much bigger.

Most of the investment will be needed to replace Britain's ancient coal- and oil-fired power plants, expected to close by 2015, with plants able to backup an expected boom in wind power capacity in the UK North Sea over the next few decades.

It still makes economic sense for utilities to run their fully-depreciated old fossil fuel plants when wholesale prices rise at times of tight electricity supply.

But they will not spend billions on building plants that under current rules will only make money when output from heavily-subsidised offshore wind farms drops drastically.

"We keep the lights on by running some quite old power stations for a small number of days a year...You can't do that if you invest two or three billion pounds in a new station," Paul Golby, the chief executive of E.ON UK, told a carbon capture and storage (CCS) forum in London on Wednesday.

INCENTIVE

E.ON, like its competitors in the UK energy market, has a growing portfolio of wind farms which benefit from a government incentive scheme, called the Renewables Obligation, paying renewable energy technologies like wind for their output regardless of the wholesale electricity price.