Draft Energy Bill and proposed subsidies for new nuclear

The UK Government intends to force consumers to subsidise nuclear power through its electricity market reforms, despite promising that there would be no public subsidy for new reactors. The subsidies proposed in the draft Energy Bill (published in May 2012), alongside existing subsidies, go against the 2010 UK Government Coalition Agreement of no public subsidy for new nuclear power.

Whilst it makes sense to subsidise new technologies that would help cut greenhouse gas emissions, to aid their deployment and reduce costs so they can eventually reach market maturity and no longer require a subsidy; it makes no sense to subsidise nuclear energy, which has benefited from massive subsidies for over 60 years without achieving the expected cost reductions, and produces dangerous radioactive waste that has still not been adequately dealt with. Any subsidies should be reserved for renewable technologies that are relatively new and still finding their feet commercially, as well as energy conservation measures.

There are four key elements to the Government’s electricity market reforms, and each has the potential to provide a direct or an indirect subsidy to the nuclear industry. They are:

- Feed-in Tariff with Contracts for Difference (CfD) (guaranteed long-term price for nuclear power generation);
- Capacity Mechanism;
- Carbon Floor Price (CFP);
- Emissions Performance Standard.

WWF and Greenpeace have calculated that the Government’s proposed reforms could equate to a £3.43 billion windfall to existing nuclear generators between 2013 and 2026.

- Offering new nuclear operators a fixed unit price for the cost of spent fuel management and disposal represents a subsidy of perhaps as much as £427 million per reactor.

- Underwriting nuclear operators’ nuclear waste and decommissioning costs also represents a subsidy.

- Any limit on liability on the costs of nuclear accidents eases the burden on nuclear operators. Paying for commercial insurance could add around half a euro to the cost of a unit of electricity, so a cap on liability represents a subsidy.

The construction cost of each new Areva EPR reactor, the design that EDF/Centrica want to use for Hinkley and Sizewell, has reportedly been revised up from £4.5 billion to £7 billion, an increase of some 55%. 2

Factoring in this new figure and a standard 15 percent return on investment, EDF would charge about 166 pounds per megawatt hour of electricity produced from its proposed new nuclear plants – requiring a government handout of 115 pounds per megawatt hour, according to Peter Atherton, an analyst from Citi.

Tom Burke estimates that EDF/Centrica’s planned new nuclear power stations at Hinkley and Sizewell (two reactors at each) would cost £155 billion in subsidies over 30 years under the proposed CfD. 3

This assumes that the reactors would be built on time and to budget, a feat which has so far eluded Areva, EDF’s reactor supplier. If not, the sum would be even higher.

This would amount to an extra £5.2 billion/year on people’s fuel bills (equivalent to £83/year for every person in the UK); and that would be just to cover ONE of the subsidies, and assumes that only four reactors would be built in total.

Energy Fair’s report, “The financial risks of investing in new nuclear power plants” 4 shows that by the time any new nuclear power plant would be built in the UK (2020 or later), much of the market for its electricity would likely be disappearing. Consumers, both large and small, will be empowered to generate much of their own electricity, or to buy it from anywhere in Europe, because of the falling cost of renewables and the likely completion of the European internal market for electricity.

Meanwhile, new nuclear plants would be paid for via surcharges to consumers’ bills, for as much as 35 years. Energy Fair’s Dr Gerry Wolff says this means that it will be mainly poorer people who will foot the bill, because they will be least able to afford the up-front costs of generating their own power.

Energy Fair has submitted a formal complaint to the European Commission (the Directorate General for Competition) about subsidies for nuclear power. 7

References:

1. NFLA New Nuclear Monitor No. 28 – May 2012 – UK Government’s Proposed Electricity Market Reforms – A Public Subsidy for New Nuclear?
we.riseup.net/assets/95873/NFLA%20New%2...
2. UK nuclear build requires taxpayer rescue – Citi
www.reuters.com/article/2012/05/08/nucl...
3. Hinkley and Sizewell will cost us £155 billion over 30 years under the CfD
tomburke.co.uk/2012/05/28/hinkley-and-s...
4. The Financial Risks of Investing in New Nuclear Power Plants – Report by Energy Fair, April 2012
www.mng.org.uk/gh/private/risks_of_nucl...
5. www.energyfair.org.uk/no-subsidies
6. A subsidy for nuclear power and its unintended consequences
docs.google.com/document/d/17HL9RXL8KaC...=1
7. www.energyfair.org.uk/actions#second_co...

 

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