The cash is needed to build the equivalent of 20 large power stations and upgrade the grid, as a quarter of the UK’s generating capacity shuts down over the next ten years.
Huhne’s plans, outlined in a government white paper yesterday, plot a course to cut carbon emissions and reduce reliance on fossil fuels.
They will also attempt to address fluctuations in electricity prices through the introduction of long-term price contracts with nuclear plants and windfarms.
If electricity prices outstrip the level set in the contracts, firms will have to pay back the difference.
Consumers will face rising energy bills as a result of the reforms. But Huhne warned that without change, prices would be higher still.
“None of these challenges can be met for free,” he said.
AT A GLANCE: ENERGY REFORMS
● NUCLEAR AND RENEWABLE ENERGY
A ‘carbon price floor’ measure will be introduced to encourage investors to plough cash into low-carbon nuclear and renewable power production. The reforms aim to put a fair price on carbon and help to cut Britain’s CO2 output.
● CONTRACTS FOR DIFFERENCE
Designed to allow clean technologies with high upfront and low long-run costs to compete with traditional fossil fuels. In return for providing increased certainty, generators will be required to pay back cash should the electricity price be higher than they need to make a fair return on their investment.
● CAPACITY PAYMENTS
Reforms to ensure that Britain has enough capacity to produce energy. Key given the often questioned reliability of supply from renewable sources. Old coal power station operators could be rewarded for being able to provide electricity when supply runs short from low-carbon producers.
● STABILITY OF ELECTRICITY PRICES
Putting an end to fuel price shocks by improving guarantee of supply from low-carbon sources. Increase the share of electricity produced from renewable sources from seven per cent to 30 per cent by 2030. The department for energy and climate change said the reforms would mean electricity bills would be about £160 per year by 2030, or £200 without the changes.