E.ON, the German-owned utility, is to spend £800m to convert its Isle of Grain power station in the Thames estuary into a gas-fired facility.
The project, which should be completed by the end of the decade, will convert the power station – which was built in the 70s – from an oil-fired facility into a baseload plant capable of producing sufficient electricity for up to two million homes.
“Converting Grain would allow us to produce more environmentally friendly electricity for the equivalent of half the homes in London,” E.ON UK chief executive Dr Paul Golby said.
The company should benefit from any current or future carbon tax or trading scheme. Britain is seeking to cut carbon dioxide emissions by 20% by 2010, compared with the Kyoto target of an 8% cut by 2012.
Supporters argue lower emissions can mean lower fuel bills, but critics worry that if British firms have to buy more emission certificates than European mainland competitors with the same emission levels, it would lead to competitive disadvantage.