Fiona Hall MEP writes: Subsidies for nuclear energy go against Coalition agreement AND economic common sense

With the Government due to announce new measures to encourage investment in low carbon power generation as part of its Electricity Market Reform (EMR), it is time for Liberal Democrats to speak out against public subsidies for nuclear energy. Why? Because among the Government’s proposals is the so-called Feed-in Tariff with Contract for Difference (FiT CfD) which will offer a price guarantee and revenue certainty for investors in low-carbon electricity generation  – including nuclear.  Such a public subsidy to help build new nuclear power stations in the UK would go completely against the Coalition Government Agreement and prolong “the most expensive failure of post-war British policy-making” as Chris Huhne only recently calledBritain’s nuclear energy policy.

 FiTs were designed to assist new renewable technologies such as wind or marine energy in expanding their deployment and reducing costs through economies of scale, thereby helping them reach market maturity. It is therefore rather puzzling that the Government wants to apply this mechanism to a technology that has existed for over 70 years but has never achieved any cost reductions. The story of nuclear is indeed the story of constantly rising prices: at the end of the 1970s an average French nuclear reactor cost around 1 billion EUR, but by 2010 its cost had risen to 6 billion EUR, a six-fold in 30 years – almost double the increase from inflation.

  On top of high capital costs, nuclear power has a hugely expensive legacy in the form of decommissioning of its reactors and disposal of nuclear waste. The current UK bill for the clean-up of UK’s existing nuclear industry and its waste has been estimated to be roughly £100 billion or two thirds of the budget of the Department for Energy and Climate Change (DECC). On average, such indirect costs add up to 35% to the overall capital costs of building a nuclear reactor, according to the Swiss Federal Energy Office, which has undertaken an in-depth analysis concluding that decommissioning costs continue to rise.

  Renewable energy sources, on the contrary, have only been around for a couple of decades but prices have come down considerably. While the level of research and development for renewables runs at less than one third that of the nuclear R&D budget in OECD countries, capital costs for technologies such as wind and solar photovoltaics have nevertheless dropped dramatically in the last decade, with onshore wind projected to become competitive with gas and coal in Western Europe by 2020 at the latest.

  By contrast, the continuing unprofitability of nuclear technology recently led two German energy utilities, RWE and E.ON, to pull out of  plans to build new nuclear in the UK. However, if a FiT CfD goes ahead British consumers may find themselves subsidising nuclear technology for over 40 years, the average lifespan of a nuclear reactor, solely to keep in profit the one remaining interested power company,France’s EDF. Billions of pounds will be diverted from the wind and marine energy sectors where theUK’s natural advantage lies, hampering British industrial leadership in these sectors and risking a major loss of business opportunities and new jobs.

  Fortunately, there is a European dimension to energy policy, not least because of single market rules, and the UK is already being challenged in Brussels on the grounds that a nuclear FiT CfD conflicts with EU state aid rules, which only allow state support for new technologies.  However, the UK government is rumoured to be trying to push its own agenda inBrusselsby arguing for a broader subsidy framework for mature nuclear technology. This would be an extraordinary volte-face for a liberalising nation which led the fight for reform of the European electricity market – and for a Coalition Government based on an agreement not to build any nuclear power stations with public subsidy.

* Fiona Hall is Leader of the UK Liberal Democrat Delegation in the European Parliament and MEP for the North East of England.

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17 Comments

  • Simon mcgrath 18th Apr '12 - 5:56pm

    “However, if a FiT CfD goes ahead British consumers may find themselves subsidising nuclear technology for over 40 years”
    How long will the wind farms need subsiding for?

  • Stephen Hesketh 18th Apr '12 - 7:49pm

    If local communities were asked what mix of energy conservation, solar (hot water and PV), wind, wave, geothermal, gas, coal or nuclear they would like to see in their area we might move the renewable versus nuclear debate forwards.

    Of course it is ridiculous that we are asked to subsidise the hugely capital-intensive nuclear industry. If the same investment were placed in energy conservation measures and domestic / small-scale generation how many local jobs would be created – with the additional benefit of not burdening future generations with the long term costs and effects of dealing with the waste.

    I might also ask how many communities (except those with few other employment options) would vote for this technology on their doorstep? Give me electricals with no stand-by function, a tidal barrage or wind farm anyday.

  • Andrew Duffield 18th Apr '12 - 8:10pm

    @ Rebecca

    “Are the new nuclear plants which we are due to start building soon subsidised in any way?”

    Nuclear power would not be possible without massive public subsidy – the largest part of which is insurance underwriting by the state. Paying its own public liability cover is simply not a viable option for the nuclear industry. Never has been, never will be.

  • Stephen Hesketh 18th Apr '12 - 8:52pm

    @ Andrew

    “Paying its own public liability cover is simply not a viable option for the nuclear industry”

    The reason for the public liability being so high might not go amiss in any local debate!

    An overworked turbine might look good on the front of a ‘poke fun at renewables’ tabloid, a nuclear reactor in meltdown could bring disaster to an entire region. But it is nice money if you can get it. Talk about the interests of the few over the many!

  • This article is not right. There is a big difference between offering a guaranteed minimum future price, and a cash subsidy. In an ideal world we would price carbon correctly, and neither would be needed. But we don’t. So we offer nuclear a guaranteed future price – which protects them against the cost of gas going down to US levels which would in turn mean that gas powered stations would be cheaper to run than nuclear, and we offer renewables FITS – which are proper subsidies, in the hope or expectation that they will become cheap enough overtime to replace gas and coal.

    If we are serious about global warming then nuclear almost certainly has to be part of the mix. (I realise that there are other theoretical alternatives, but they all look very expensive indeed at the moment – using wind to pump water up hill in sufficient quantities to run water turbines on still days, etc). That is why – in government, where posturing has real costs – Chris Huhne and Ed Davey have taken realistic decisions that put Britain on a long term, economically and environmentally sustainable, low carbon path.

  • jenny barnes 19th Apr '12 - 9:33am

    As it’s likely that the clean up costs will fall to the tax payer – we’ve seen a few examples of firms turning themselves into shells so they can asset strip and then walk away from their liabilities – it would probably be betterto build a nationalised nuclear energy system. Then we can use UK tech if that’s suitable, or the best available in the world if it isn’t. Gas is the cheapest and most flexible electricity production fuel; so that’s where the market will go if there is no carbon price or subsidy.

  • Thanks for your comments.

    @Rebecca
    Is the Feed in Tariff contract for Difference (FiTCfD) a subsidy in everything but name? Well that ‘s what all sides of industry tell me. The nuclear industry has lobbied the government very hard to get this.

  • On the issue of renewable subsidies – UK citizens would have to subsidize renewables for 85 years to reach the level of subsidy of the nuclear industry to date – and that’s even before we start with the Electricity Market Reform proposals.

    Some renewables are still at an early stage and are likely to need support for quite some time – wave energy for instance. Other technologies have already come down massively in price. Because PV is now so much cheaper the Coalition Government rightly reduced the Feed in Tariff. Onshore wind is expected to be competitive without subsidy by 2020. Offshore wind will take longer, maybe 30 years. But a key point is that all these renewable technologies are very new and need support to develop technically and get established. Nuclear on the other hand has already been around for 70 years – and yet the level of subsidy to nuclear continues to rise. So it’s not surprising that some countries, such as Switzerland, are backing out of nuclear now purely on cost grounds. It’s just not worth it.

  • On the question of rising energy bills – are renewable subsidies to blame? They are a small factor. Chris Huhne when he was Secretary of State pointed out that just £20 of the £300 increase in energy bills was due to renewable energy obligations. More significant has been the dramatic rise in gas prices – and of course the failure of the big energy companies to bring down their gas prices with the same speed and enthusiasm that they put them up with. Another factor is that the UK and indeed Europe face ageing energy infrastructure which needs to be replaced whatever the future fuel mix.

  • @Tim Leunig
    EDF’s own estimate of the cost of building a 1.4GW nuclear reactor is £4.5 billion. An interconnector to Norway with a 1.4GW capacity costs a quarter of that, as an upper estimate.

  • Stephen Hesketh 19th Apr '12 - 8:36pm

    @ Colin

    It may surprise you given my previous contributions that I would actually like to see us build a thorium reactor to properly investigate this technology and its potential benefits. I am certainly happy to experiment on new/safe/low carbon technologies.

    It would however be crazy for the tax payer/state to become embroiled in another round of subsidies for a known failed technology.

    One of the points of my initial posting was an objection to the NIMBY mentality. Depending upon the environmental sensitivity of an area, I would like to see local communities having to save and generate a pre-determined proportion of their own energy. The more they could save, the less they would be required to generate locally. Generally prosperous, green and pleasant, areas off-loading the environmentally effects of frequently wasteful lifestyles onto others is simply not acceptable.

    @ Stephen W – yes, I completely agree with your first point – just that you won’t find those communities very far away from existing nuclear power stations!

    As someone who lives at sea level adjacent to a Magnox irradiated marsh I am all to aware of both the problems with existing nuclear technology and the threats of us not reducing (global) CO2 emissions. There is no single easy answer but communities beginning to take responsibility for their own energy needs would be a good devolved and libitarian place to start.

  • “Fiona Hall Apr 19 – 5:18 pm – @Tim Leunig – EDF’s own estimate of the cost of building a 1.4GW nuclear reactor is £4.5 billion. An interconnector to Norway with a 1.4GW capacity costs a quarter of that, as an upper estimate.”

    Fiona – thank you for answering, but your comparison is not the right one. Even if your figures are right (you give no references) nuclear is capital intensive – expensive to build and cheap to run, so the fact that the build cost is high should surprise no-one. What matters is the all in cost – build and running.

    Your reply doesn’t answer my point that a feed in tariff is a subsidy, whereas a guaranteed minimum price is simply an assurance that govt won’t do something nutty in the future (like give up caring about carbon, and let gas sweep the market). The latter is not inappropriate given that this is a highly political sector. It is akin the govt giving control over interest rates to the Bank of England – a way of making it clear that politicians aren’t able to do silly things. That is why Chris and now Ed are doing what they are doing – giving Britain non-subsidised, low carbon nuclear power. As LDs we should be proud that they are setting Britain on a low carbon path, without costing us all a fortune, rather than attacking them!

  • Tim – do consumers really care whether Government increases energy costs by taking an amount of money from their bills to hand to generators (as with FITs – a subsidy you say) or causes their bills to increase by a price-fixing arrangement that means they have to pay more for nuclear (CfD – not a subsidy you say)?

    If the LibDem Ministers think that nuclear is necessary, they should have the courage of their convictions and argue for subsidy to ensure it gets built. This would give the public the chance to debate what we do subsidise, allow us to determine the most rational way to do it, and be fundamentally honest. Even SSE have been telling MPs that Government is proposing “hidden subsidies” (see guardian website)

    As it is we are scrabbling around trying to push money the way of the nuclear industry while pretending not to, seeing little progress in actually getting anything built (RWE/Eon being the last set back) and run a very real risk of ending up with failing to get (much) new nuclear capacity, but having set back the alternatives through all the effort that has been expended here.

    And to all those saying “There is no alternative” … yes there is. DECC assessed numerous different ways of keeping the lights on and hitting our carbon targets with their carbon calculator. About half of their “path ways” did not include nuclear. This is a choice – and one people should be honest about.

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