- Written by Jonathan Lane, GlobalData's head of consulting for power and utilities.

The UK government’s Energy Bill will be introduced to parliament next week. Its key measure will be to introduce a government-owned entity that will buy electricity at an agreed “strike price” from low carbon generators and recover the costs from electricity customers via electricity suppliers. The government-owned entity will buy the electricity under a contracts-for-difference mechanism feed-in-tariff (CfD FiT) that will top-up revenues for low carbon generators if the wholesale electricity price is below the strike price and claw back revenue if wholesale prices rise above the strike price. The CfD FiT scheme will replace the Renewables Obligation (RO) although the two will run in parallel from 2014 until 2017.

The amount of spending to support low carbon generation, through both the RO and the CfD FiT scheme, will be capped under the Levy Control Framework (LCF) – which also covers the small scale feed-in-tariff scheme for microgeneration such as solar and the Warm Home Discount, whose costs are also recovered from consumers via energy suppliers. The government has already announced that the LCF budget will grow from £2 billion in 2012 to £7.6 billion in 2020 in real terms, or £9.8 billion accounting for inflation. The policy objectives are twofold...