The UK government has wanted new nuclear reactors for years, but a political contortion means explicit support is impossible. Result: a bewildering maze of measures
Energy in the 21st century is about three Cs: carbon, cost and continuity of supply. But the UK government’s major reform of the country’s electricity market, due to be published on Tuesday, is fundamentally about only one thing: new nuclear power.
The plans are critically important. They represent a giant intervention in the UK’s unusually free market and are intended to deliver the investment needed to meet the three Cs, that a free market would not provide. In other words, it’s about keeping the lights on while cutting greenhouse gas emissions at a price that consumers can pay. The UK government decided long ago that new nuclear power stations are essential to deliver this.
In the last few days I have spoken to people in the power industry, energy academics, investors and green campaigners. All agree that the sprawling and complex maze of measures the government proposed has the central aim of getting new nuclear power stations built. Essential background reading on this is an article by Professor Catherine Mitchell at Exeter University, which deftly leads you through labyrinth.
I’ll come to what to look out for in tomorrow’s plan, but first I want to ask how the UK came to place such a big bet on nuclear? It started a decade ago, when the then Labour government opted for a 2010 renewable energy target of 10% (which was missed) instead of 20%, placing the emphasis instead on nuclear power. Government and the nuclear industry have been in each others pockets ever since, as shown by the shockingcollusion to downplay the Fukushima disaster, just hours after it happened.
Fast forward to this government and you have the unhappy coupling of the Conservative’s pro-nuclear stance and the LibDem’s once stern opposition. The mutant offspring of this was the pledge that new nuclear could go ahead providing there was no subsidy by taxpayers. That political contortion is the direct cause of the complexity of the measures: they have to support nuclear without explicitly supporting nuclear.
Of course, the “no subsidy” claim is ludicrous in principle, given that taxpayers plays the same role for the nuclear industry as they did for the banks: they bail them out when things go wrong, an implicit subsidy.
But it’s ludicrous in practice too. One of the measures in the reform package is a minimum (floor) price for carbon emissions, which favours nuclear so clearly as to have prompted a backbench LibDem revolt. Incidentally, ‘subsidy’ is defined as “a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.” The fact that renewable energy generators might get a smaller slice of the same pie does not mean it is not a subsidy.
Let me be clear here. There is an argument, made by the government and others, that new nuclear power is absolutely necessary as low-carbon baseload, meaning state subsidies would be justified. If that argument carries the day, so be it. But burying the subsidies in an attempt to hide political embarrassment hinders proper debate.
It’s also worth noting that the pro-nuclear carbon floor price was delivered by the government far sooner and at a higher rate than expected. Contrast that with the cut in support for both solar power and marine energy, and the delay in the main energy efficiency policy, the Green deal.
So, what to look out for on the reform plans expected on Tuesday?
What will it cost energy customers? Many existing UK coal and nuclear plants will close this decade, meaning investment in energy infrastructure has to go up from the current £8bn a year to £20bn a year. Much of that cost will be put on household bills. If the cost is high, businesses will worry that unhappy voters will mean future ministers don’t stick to their policies, as has happened in the UK and across Europe before. If the cost looks acceptable to bill payers, the plans have a chance.
Who in the UK’s big six energy companies is happy? Industry gossip says EDF, the French utility with the biggest stake in new nuclear, got exactly what they wanted in the proposals set out by the government. If EDF, with junior partner Centrica (who run British Gas) like the reform plans, then they are good for nukes. RWE npower and E.on also have bets on nuclear, but also big stakes in coal and gas, as well as high debt and opposition to nuclear at home in Germany. They warned last week that new nuclear stations in the UK could be too expensive for them. SSE has been the most supportive of renewable energy: if they are happiest, renewables have done well.
Is there any obligation to build renewables? Backers of renewables worry that the “contract for difference” option favoured by the government will not support the sector well, compared to the existing system in which suppliers are required to deliver a certain proportion of renewable electricity.
Are there incentives for energy efficiency? Cutting demand through efficiency measures is often cheaper than increasing the supply of low carbon electricity. But some observers worry that there will be few incentives in the reform package, beyond promising to look further at options. The government points to its Green deal: critics say this could have a big impact on gas demand, but not on electricity.
Is there help for new entrants to the market? Energy secretary Chris Huhne promised last week to “break the dominance of the big six” energy companies, which provide 99% of the UK’s power. That may be easier said than done.
The one thing every participant in the energy debate will welcome is the end to at least some of the uncertainty about the UK’s energy future, which had damaged investment in renewables in particular.
As it stands, it looks like nuclear power will be the big winner from the reform package. It’s also likely that the headlines will be dominated by cost, and arguments about whether household bills will be rising by more or less than in a high-carbon scenario.