The government plans to start operating a long-term power capacity market in 2011 as it seeks to encourage investments in new generation, the Energy Ministry said Monday.

The ministry will submit proposals on pricing to the government by the end of this year and expects the first tenders for the market to be held by September 2010, spokeswoman Irina Yesipova told reporters.

The market, part of a state reorganization of the industry that includes eliminating price caps on electricity by 2011, will allow generators to sell capacity as well as electricity. It would create competition to cut output costs and secure supplies, Yesipova said.

Under the market’s rules, utilities would apply to receive payments for new capacity four years before it is commissioned, with the state picking the most competitive offers, the ministry said in a statement.