Energy Secretary Chris Huhne today announced the reform of the UK electricity market.

Huhne says the reforms are necessary to deal with increased electricity demand, ageing power stations and the need for low carbon energy sources in order to meet climate change challenges. The changes are likely to mean new feed in tariffs for larger scale low carbon technologies.

The government believes that all low carbon electricity generation needs support to capture its benefits to our climate and to ensure security of supply. The department of energy and climate change want the true costs of unabated fossil fuels and the benefits of low carbon electricity to be captured in policy.

The reforms aim to provide investor confidence for nuclear and renewable energy which share the characteristics of large upfront costs and low ongoing running costs. These characteristics have historically been less attractive than the lower up front costs of gas. Long term contracts by way of feed in tariffs for low carbon generation are expected to further encourage green energy investment.

Energy secretary Huhne said:

“These reforms lay the foundations for a sustainable economy, bringing billions in investment in the UK through greater certainty, safeguarding jobs up and down the supply chain, and giving the UK real competitive advantage in advanced energy technologies.

“More than £110 billion of investment is needed in new power stations and grid upgrades over the next decade, that’s double the rate of the last ten years. Put simply, the current market is not fit to deliver this.

“The UK was first to put binding carbon reduction targets into law. Now the coalition is taking the historic step of introducing, permanently, a level playing field for low carbon technologies in the UK’s electricity market.

“Without investment in renewables, new nuclear and carbon capture and storage, emissions will remain too high, we will become dependent on energy imports, and increasingly vulnerable to fossil fuel price volatility.

“Low carbon technologies must be given the chance to become the dominant component in our electricity mix.

“Crucially, our reforms will also make sure there is enough spare supply to keep the lights on reliably. They will protect the rules for existing investments. And, over the long term, they will achieve more, while resulting in bills lower than they would otherwise be.

The reforms are at the consultation stage and the government says it is interested in views on whether the preferred package under the electricity reform is the right one. It is anticipated that reforms will be in place by 2013, but that renewables investors would be able to build under the renewables obligation until 2017.