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UPDATE 1: UK energy deal triples renewables subsidy by 2020

LONDON, Nov 23 (Reuters) - British government support for low-carbon electricity generation will triple by 2020 after the energy and finance ministries reached a deal to end months of wrangling over costly reforms.

The move is expected to boost the share of renewables in Britain's energy mix to 30 percent by 2020, outpacing European Union targets of 20 percent, while creating tens of thousands of new jobs.

Under the agreed Levy Control Framework, spending on renewable power generation will increase to 7.6 billion pounds ($12.12 billion) a year in real terms by 2020, from the current 2.35 billion pounds, to reduce dependence on gas.

The renewable spending plans will be funded through further rises in household energy bills which are increasingly unaffordable for many consumers.

"Bills are going to rise, the proposals are very negative for consumers," Liberium Capital, a London-based investment bank said.

"At face value a 7.5 billion pounds nominal rise in low carbon support could equate to an 80 pounds (20 percent) per household bill increase," it said.

Renewable spending will be focused on rewarding low-carbon power producers like renewables, nuclear and fossil fuel plants fitted with carbon capture and storage technology, a Department of Energy and Climate Change (DECC) spokesman said.

Divisions over spending plans between energy minister Ed Davey and finance minister George Osborne have delayed key agreements over energy policy at a time of painful austerity measures introduced by the government.

Industry group RenewableUK said the spending plans would create tens of thousands of jobs, bring forward at least 40 billion pounds of private sector investment and allow for a massive expansion of the UK's renewable energy sector.

The extra investment announced on Friday will see renewables' share of the energy mix rise from 11 percent now, driven primarily by the 31 gigawatts of wind energy to be installed by 2020.

Britain's renewable energy targets are more ambitious than that of its European neighbours, including Germany, which is on track to meet its 18 percent target by 2020, despite deciding to phase out nuclear power last year, Eurostat data shows.

France already produces the vast majority of its electricity from low-carbon nuclear power plants.

The spending increase will also help to support new nuclear power and the commercial use of untested carbon capture and storage technologies, the government said.

"This is a durable agreement across the coalition (government), against which companies can invest and support jobs and our economic recovery," Davey said in a statement.

The energy minister said that the agreement paves the way for the introduction of the Electricity Market Reform (EMR) Bill next week, with some reforms up and running by 2014.

"They will allow us to meet our legally binding carbon reduction and renewable energy obligations," he said, "and will bring on the investment required to keep the lights on and bills affordable for consumers."

LEADERSHIP FAILURE

Environmental group WWF criticised the government's decision to delay setting a decarbonisation target initially expected in next week's Energy Bill to 2016, saying it represented a failure of leadership. The 2016 decision will set new parameters to bring down carbon emissions further by 2030.

"Having a 2030 decarbonisation target is nothing that Mr Cameron's government should be afraid of given that it is a key requirement to deliver the legally binding Climate Change Act commitments, which Mr Cameron played such a key part in delivering almost exactly four years ago," WWF's David Nussbaum said.

Nussbaum added that engineering companies like Spain's Gamesa and Germany's Siemens wanting to invest in the UK's renewable supply chain needed clear long-term government commitments before entering the market.

Reforms are required to attract the 110 billion pounds of low-carbon energy investment that government says is needed to replace ageing electricity plants fuelled by gas, coal and nuclear, up to a fifth of which face retirement this decade.

The EMR aims to deliver a clear and long-lasting signal to investors to ensure that retiring plants are replaced.

"The government needs to maintain this momentum in the forthcoming Energy Bill (or EMR)," Renewable UK's Chief Executive Maria McCaffrey said, adding that it will spur new investment.

"Those investors put 2.5 billion pounds into the industry this year - this will now increase exponentially," McCaffrey said.

GAS

"EMR is obviously focused on low carbon, but today's announcements give as much to gas-fired generation as to renewables and nuclear," said Ben Stansfield, senior associate specialising in energy at law firm Clifford Chance.

The government committed to establishing a system whereby backup power plants, mainly gas-fired, are paid to be ready to fill supply gaps created when the wind does not blow or demand rises during peak time.

Auctions for backup power plant operators will start in 2014 to provide backup capacity in 2018/19, the government said on Friday.

By Oleg Vukmanovic and Karolin Schaps - Oleg.Vukmanovic@thomsonreuters.com

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