Tax incentives and a new body to encourage shale gas development to be unveiled
Up to 30 gas-fired power stations will have to be built across the country, ensuring that more gas will be produced in Britain by 2030 to guarantee energy supplies, the government will announce this week.
Tax incentives and a new body to encourage the development of controversial shale gas will be unveiled as part of a new gas strategy which will be published alongside the chancellor’s autumn statement .
George Osborne, who is expected to admit that he will fail to meet his target of reducing debt as a share of GDP by 2015-16, will use his statement on Wednesday to claim he is committed to promoting economic growth when he outlines major reforms to the Private Finance Initiative (PFI).
The chancellor, who will announce that the government is on course to save £2.5bn in more than 100 PFI schemes, will speed up the process of procurement and give the taxpayer a minority stake in a new company overseeing the new model known as PF2.
A Treasury source said: “We’ll be showing that we remain committed to solving today’s problems but also preparing for tomorrow’s challenges and equipping Britain in the global race.”
Osborne pledged in opposition to reform PFI, which was first used by Sir John Major’s government, and was rapidly escalated under Tony Blair, to fund public sector infrastructure projects using private capital. Osborne, who said that the last government used PFI to play down the government’s liabilities, will create a cap on “off balance sheet” liabilities.
Katja Hall, CBI chief policy director, welcomed the PFI reform. She said: “Today’s announcement ends months of uncertainty for the industry by setting out a new model to channel private finance into the development of UK infrastructure. The pipeline of projects also offers good news for an under-pressure construction sector.”
The government will declare in its gas strategy that an extra 26 gigawatts of gas will have to be produced by 2030, which will require 30 new gas-fired power stations. Some of these will be created by modernising existing plants.
The strategy will say: “Both now and in the future we need a diverse generation mix that balances risks and uncertainties of different technology options … the government expects that gas will continue to play a major role in our electricity mix over the coming decades, alongside low-carbon technologies as we decarbonise our electricity system.”
The strategy will add: “In 2030 we could need more overall gas capacity than we have today.”
The government will also announce that it is to consult on introducing tax incentives to encourage the production of shale gas and will create an Office for Unconventional Gas. This is designed to co-ordinate responsibilities across government. Davey is to make separate decisions on the highly controversial process of fracking to extract shale gas.
The new gas strategy, which follows differences within the coalition over onshore windfarms, will prompt speculation that the Tories and Liberal Democrats are once again in disagreement over energy policy. Ed Davey, the energy and climate change secretary, told the Guardian recently that the Tories would try to “big up” gas when he unveils the new strategy on Wednesday. “It’s an over-used phrase,” he said of the term dash for gas. “We are some way off from thinking we have too much gas. I am quite relaxed about the gas strategy that will be published at time of the autumn statement.
“I am sure the Tories will big it up, but Liberal Democrats have always said gas has a role. If there is a danger that we are locking in too much gas, we will still have tools to reduce it.”
Lib Dem sources told the Guardian last night that they were relaxed about the new gas strategy even though it will signal an increase in the amount of gas. The sources said they were reasonably relaxed because the overall level of fossil fuels in the “energy mix” will fall because oil and coal, which are more expensive and more carbon intensive, will be reduced. Lib Dem also say that they are as keen as the Tories to ensure continuity of Britain’s energy prices and to keep fuel bills down.
Jesse Norman, the Conservative MP who advised Osborne in opposition, welcomed the announcement on PFI. He said: “The PFI has become notorious for its cost, inflexibility and lack of transparency. It is very good news that the government’s new PF2 is addressing all of these issues.”