Financial burden of new nuclear in the UK comes into sharp focus

Jul 07, 2009 (Datamonitor via COMTEX) -- BGYNY | Quote | Chart | News | PowerRating -- As the dust settles after EDF and Centrica's buyout of British Energy, the triumphalist outlook for new nuclear build that has marked the past six months is being replaced with a palpable air of anxiety. Recent comments and interviews reveal the growing disparity between government and industry views on finance with the cracks in the UK's plans for future energy generation coming into sharp focus.

In late May, EDF Energy chief executive Vincent de Rivaz warned that a lack of financial support would prevent the building of new nuclear power stations. Although Mr de Rivaz insists that specific government subsidies are not part of his business plan, his calls for "stability" (implicitly a fixed minimum carbon price) to ensure that baseload power generated from nuclear is competitive amount to the same thing. Mr de Rivaz reiterated his position in an interview with The Observer on July 5.

However, UK energy secretary Ed Miliband had already stated that the UK did not intend to subsidize nuclear power. "I think we are right not to subsidize new nuclear power stations because we have an obligation to get to a low-carbon future at the lowest cost to the bill-payer," he said.

His sentiments were echoed by business secretary Lord Mandelson, who stated in June: "We are not going to achieve a competitive [nuclear] sector by handing out subsidies. We are not in the business of giving out subsidies. We are in the business of maintaining a level playing field."

Yet to some observers, low carbon technologies do not appear to be competing on a level playing field. Mr de Rivaz and other major utilities such as E.ON and RWE have been quick to point out that the more photogenic generation sources such as wind and solar are the beneficiaries of generous subsidies and tax breaks. Equally, carbon capture and storage technology is receiving massive R&D funding and incentives. For all the government's rhetoric on free market attitudes, it has effectively picked its winners already.

Some have gone on to point out that while a subsidy to the nuclear industry might be unattractive in the current political climate, it could be more equitable than a carbon price floor. The costs of emitting greenhouse gases are essentially passed on from utilities to end-consumers, but since this does not take into account the end-user's income status, it is effectively a regressive tax - i.e. those earning less pay proportionally more than high-income groups. Conversely, a progressive ring-fenced tax on carbon to raise subsidies for nuclear power could be implemented in such a way as to take household income into account.

Equally, one might question the practicalities of implementing a carbon price floor. For one thing, determining just what is necessary is tricky. The costs of building a new nuclear power station are notoriously difficult to predict - especially in the case of the new evolutionary power reactor. As such, estimates regarding the carbon price necessary to make new nuclear build viable vary from as low as E45/tonne of CO2 emitted, up to E75/tonne.

Yet it is simply unfeasible for politicians to contemplate imposing such a cost in the current recession. The British government (or for that matter the EU) could not set the floor too high because of the lobbying power of utilities and industrial groups (evidenced by the continuing give-away of carbon credits). Although low-carbon energy generators may be keen to see a stable investment climate, other interest groups like heavy industry or transport would clearly oppose a high minimum addition to their input costs. With industry already struggling under the recession, few governments would wish to see their national firms become any less competitive.

Yet a price that is politically acceptable to industry groups would essentially fail to send a positive investment signal to the nuclear industry. What is the benefit of a floor price of E8/tonne emitted (as suggested in February this year) if nuclear power is still more expensive than coal at such a level?

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