UPDATE 1-UK talks to nuclear firms about fixed power price

* EDF Energy, Centrica in talks with govt about nuclear contract
* Low-carbon power to compete without intervention in late 2020s
* Govt would not oppose regulator decision to run nuclear longer
* Govt considering option of multiple contract counterparties

By Karolin Schaps


LONDON, May 22 (Reuters) - The UK government has started talks with two nuclear operators about fixing a price for power generated from their proposed new nuclear plant in what is the first indication that industry is preparing for the government's power market reform.
The reform, a draft of which was introduced to Parliament on Tuesday in an important legislative step, proposes to guarantee producers of low-carbon electricity, including nuclear power, a minimum price for sold electricity in a bid to encourage investment in forms of energy that do not emit carbon.
Utilities EDF Energy and Centrica plan to build the country's next new nuclear power plant at Hinkley Point in Somerset and locking in a future electricity price would guarantee the operators long-term returns on a project which costs several billions of pounds to build.
"We are starting negotiations with EDF and Centrica over Hinkley Point C, they have only just started," Secretary of State for Energy and Climate Change Edward Davey told journalists on Tuesday.
The first so-called contracts-for-difference guaranteeing the minimum price will start in 2014, but the ultimate aim is for low-carbon technologies to cost-effectively compete in the market without government intervention by the late 2020s.
The government's incentive plan for new plants was thrown into doubt in March, when E.ON and RWE decided to put their UK nuclear new build joint venture Horizon up for sale.
Britain's electricity market reform will push through new rules to help reduce carbon emissions, ensure demand is met by supply and shelter consumers from extortionate bills.
With around 200 billion pounds of investments needed to decarbonise Britain's energy market and global energy prices estimated to rise, energy bills are certain to increase in future, but the government says its power reform could limit household power bill increases to 100 pounds by 2030, compared with 200 pounds if no changes were made.
POWER SUPPLY SQUEEZE Britain also faces a power supply squeeze by the middle of this decade as around 15 percent of ageing and polluting capacity will shut down and further station closures, including nuclear plants, will increase the supply gap by the early 2020s unless the market offers incentives to build new plants.
Energy Minister Charles Hendry said on Tuesday the government would not oppose a nuclear regulator decision should it rule UK nuclear power plants were safe to run for longer.
The government's price guarantee to low-carbon generators was proposed to be backed up by one central counterparty, but it said on Tuesday it was considering installing several counterparties after requests from industry stakeholders.
On top of guaranteeing low-carbon power generators a price, a minimum cost of carbon will be introduced in April 2013 at 16 pounds per tonne of CO2 to further discourage carbon emissions.
The reform also proposes a mechanism to pay holders of backup capacity, mainly aimed at gas-fired power plants, who can switch on or off power plants at short notice to balance out intermittent renewable energy plants such as wind farms.
An Emissions Performance Standard (EPS) will also set a maximum level of carbon emissions from fossil fuel power plants.
Most electricity market stakeholders welcomed the government's reform, but some expressed concern about the timing and complexity to push through necessary changes.
"I applaud government's appetite for reform, but pulling so many levers at once in such a complex area risks losing sight of your original objectives," said Volker Beckers, CEO of RWE npower, the UK subsidiary of German utility RWE.
Other industry analysts said investors will need much more detail on the technicalities of the reform proposals to make final investment decisions on new power generation capacity.
"The critical challenge over the next 12 months is for the debate on market reform to converge on agreed and workable solutions," said Bill Easton, director of utilities at consultancy Ernst & Young.

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