The legislation is designed to secure an estimated £110bn of investment needed to fund new low carbon energy generation as existing power stations begin to come offline.
Davey added that the bill would also provide the foundation for meeting the UK’s legally binding carbon reduction targets, increase security of supply and reduce our exposure to price volatility of oil and gas.
The reform promises to reduce energy bills by 4 per cent over the next 20 years whilst meeting increased demand for power as we increasingly turn to electricity for heating and transport.
Ed Davey said: “I think it is a game changing agenda which is very deliverable and absolutely essential.
“It is about low carbon generation. We are trying to create a system where, ultimately, low carbon technology can compete on price.
“Leaving the electricity market as it is would not be in the national interest. If we don’t secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change.”
Energy minister Charles Hendry added: “With the changes we are making, we are removing ourselves from price volatility. We must have this new plant if we are going to keep the lights on in an affordable way. This is an essential part of energy policy.”
The bill has four key elements to enable renewables, nuclear and carbon capture and storage (CCS) to become more cost competitive and attractive to investors.
-A feed-in tariff with contracts for difference (CfDs) will stabilise returns for electricity generators by paying them a fixed rate known as a strike price.
-A capacity market will be established to ensure sufficient reliable capacity (known as base load) is available to meet demand and combat the intermittent nature of renewable sources such as wind.
-An emissions performance standard (EPS) will prevent the constructing of new coal-fired power stations which do not utilise CCS.
-A carbon price floor will make renewable sources more cost competitive by increasing the price paid for emitting carbon dioxide.
Although still at a pre-legislative stage, the department of energy and climate change (DECC) says the bill is expected to receive royal assent in 2013 so the first low carbon projects can be supported by 2014.