(Reuters) – Britain must reform electricity markets if it is to secure the private investment needed to meet its carbon emissions targets, according to a study by KPMG.
The report, which will be published on Monday, said the British government’s approach to investment in low-carbon generation was inconsistent and clearer planning was needed to show how emissions targets will be met.
“Nuclear energy has to play a central role in an affordable, secure low-carbon generation mix if the UK is to meet the government’s ambitious emissions targets,” said Richard Noble, European Power and Utilities partner at KPMG.
“Nuclear represents the least cost low-carbon electricity generation; however, our research indicates that radical changes to the current electricity market will be required to secure the large scale private sector investment required for nuclear new build to proceed.”
Britain has committed to a 34 percent reduction in greenhouse gas emissions from 1990 levels by 2020.
Energy Minister Charles Hendry said this week the coalition government would reconsider Britain’s nuclear power plans but said a target for the first new nuclear power station to begin generating electricity by 2018 remained on course.
The KPMG report, commissioned by German utility RWE, said investment on the scale needed for new nuclear generation is unlikely to be achieved under the current framework and greater investment would be encouraged by a more consistent market design to reward low-carbon energy.
A carbon price floor, as planned by the government, may provide some benefits to investors in new nuclear generation but on its own will not be effective in achieving the level of investment required, it said.
KPMG, who consulted seven potential nuclear project sponsors including Centrica, EDF and EON, said potential investors would generally prefer a price mechanism which exposed them to some degree of market risk.
The report suggested paying a premium tariff over and above electricity market revenues or setting a requirement for suppliers to source a certain amount of their energy from low carbon producers.
(Reporting by Kylie MacLellan; editing by Janet Lawrence)