Will the public subsidise new nuclear?
A parliamentary committee has accused the government of failing to keep its promise not to subsidise new nuclear. But has the government been planning to renege on its promise all along?
Subsidising nuclear
The Environmental Audit Committee is calling on the government to be more open about the money it gives to the nuclear industry. A new report from the committee released today suggests the UK nuclear industry receives a £2.3 billion subsidy each year.
Committee chair, Joan Walley, tells the Financial Times:
“There may be a case for subsidies, but the government should come clean and admit it”.
The report by consultancy Oxford Energy Associates compared government support for a range of different energy sources. It calculated that renewables get about £3 billion of support annually, while gas gets about £3.5 billion.
But does the money count as a subsidy? The International Energy Agency only considers government support to be a subsidy if it directly affects the price consumers pay for electricity. Most of nuclear’s £2.3 billion is for decommissioning costs – cleaning up nuclear sites and dealing with nuclear waste once nuclear plants have stopped working – which has no direct bearing on consumer electricity prices.
The government’s current negotiations with EDF to build a new nuclear plant could put it in more dangerous territory. In 2010, the government promised “there will be no public subsidy for new nuclear power”. But it has since softened its stance, saying there will now be no “unfair” subsidy that would favour nuclear over other energy sources.
The deal with EDF would set a guaranteed price for new nuclear electricity – known as a strike price – with consumers topping-up what EDF would get for the electricity on the market. Nuclear Policy Research Fellow at the Joseph Rowntree Trust, Dr Paul Dorfman, calculates the deal could mean the public pay more than £150 billion to nuclear generators over the course of 30 year contracts.
Unlike decommissioning, the strike price will affect consumer bills. So despite the government’s protestations, the report says “it is apparent several subsidies will in fact be in place” for new nuclear.
EU regulations
If the strike price is defined as a subsidy, the government could also run into trouble with the EU. European law currently allows governments to subsidise renewable energy sources such as wind, solar and hydropower, but not nuclear.
If the government strikes a deal with EDF, it would need to convince the European Commission that the strike price shouldn’t count as a subsidy. Under state aid law, the commission can fine countries found to be boosting national industries, which could unfairly disadvantage their competitors. Running the gauntlet with the commission could “result in a lengthy scrutiny process”, according to Professor David Toke, energy policy specialist at the University of Aberdeen.
But the commission is currently considering changes to the rules, saying “[t]he wish of some Member States to widen support also to other low-carbon energy sources including nuclear merits an in-depth discussion”. If the commission changed the rule to allow any type of low carbon technology to receive state aid, then the nuclear deal would be legal.
Antony Froggatt, a senior research fellow at Chatham House, tells us he thinks the government is probably banking on the commission changing its mind, as the negotiations “wouldn’t have gone this far unless they’re confident [the changes] are going to go through”.
Wider implications
Changing the rule may pave the way for the UK deal with EDF, and could have far-reaching consequences for nuclear generators all over Europe, too.
Froggatt says that if government support for any low carbon energy source is permitted, than a number of countries – including the Czech Republic and Poland, as well as the UK – are likely to significantly increase their nuclear capacity. He adds that the change could put renewable technologies at a disadvantage, increasing uncertainty and forcing them to compete with nuclear for government support.
So whether or not the government can strike a deal for new nuclear depends not only on EDF, but the EU. The government seems to be ploughing ahead with the deal in the belief that it can get it past the European Commission – but if the EU changes its rules, accomodating the deal, the consequences would be felt far beyond Hinkley Point.