By Susanna Twidale
LONDON (Reuters) - Britain will offer guaranteed payments worth more than 200 million pounds ($340 million) a year to renewable projects in the first auction of contracts to help boost investment in low carbon power generation.
The first auctions will be held in October and renewable firms will bid for the contracts, "ensuring that new, clean electricity generation would be built at the lowest possible cost to energy consumers," Ed Davey, Energy and Climate Change secretary said in a statement.
As a part of extensive reform of Britain's electricity market the government is changing the way it supports renewable energy projects by replacing direct subsidies with a contracts–for–difference (CfD) system whereby qualifying projects are guaranteed a minimum price at which they can sell electricity.
"The government's reforms to the electricity market will reduce emissions from the power sector much more cheaply than through existing policies – around 6 percent (41 pounds) lower on the average domestic electricity bill up to 2030," Davey said.
A further 50 million pounds is planned for an auction round in 2015, with a total of around 1 billion pounds potentially available later for further projects up to 2020-21, including those that capture and store carbon emissions underground.
Earlier this week the government said it would stick to a goal to curb the country's emissions by 2027 to 50 percent of 1990 levels.
Separately on Wednesday the government said it is “committed to supporting cost-effective, sustainably produced biomass,” after it backed a study that confirmed using the fuel in power generation could be an effective way of helping Britain to reduce its emissions.
The study is the first published by government to take account of changes in the amount of carbon dioxide stored in forests, which produce the wood briquettes burned as biomass, over the lifetime of a project.
British utility Drax plans to convert three out of six of its coal-fired power generation units to use biomass. One was converted last year, and the other two conversions are planned for next year.
"We welcome that (the report) confirms the fact that where biomass is sourced sustainably major carbon savings can be delivered," Dorothy Thompson, Chief Executive of Drax, said in a statement.
The government had said it would award contracts to help fund conversion of one of the Drax units under the CfD programme and on Tuesday said it would also help fund a second unit after losing a battle in the High Court earlier this month to exclude it from the scheme.
(Reporting By Susanna Twidale, editing by David Evans and William Hardy)