Monday, 4 March 2013

MPs want to give priority to nuclear power over renewables and energy efficiency

In an especially brazen piece of pro-nuclear pleading the DECC Select Committee has effectively said that nuclear power should be given cost priority over all green energy options. They say that EDF and other nuclear companies should have their demands for  construction cost 'guarantees' met. They disingenuously suggest that this would have no consequences for consumers. See

and in particular where they say:
'54.  The UK Guarantees scheme may help to bring forward investment in Hinkley Point C, but it is not clear whether support will still be available for nuclear new build projects that are further away from making a final investment decision (such as the NuGen and Horizon projects). Given the important role for nuclear generation in the UK's future energy mix, the Government should extend this support to all nuclear new build projects, which may require increasing the amount of available assistance to more than £50 billion. (We note that the UK Guarantees scheme does not involve expenditure, as long as the guarantees are not called in.)'

In fact the Government has indicated that this will not happen and that nuclear will treated the same as renewables, but this evidently is not what the DECC Select Committee has in mind. They do say that nuclear should not be paid any more than offshore windfarms, but then efectively propose that the playing field be fixed to give nuclear power an advantage - underwriting plus, presumably, a 40 year contract thrown in (see previous blogs on this).  In the para above the MPs have implicitly 'decided' that the Government will give guarantees to nuclear as demanded by EDF - this is not what I have been hearing, but then I am a green energy realist whereas the Committee evidently is stuffed with nuclear fantasists.

There does seem to be a push for nuclear to enjoy an arrangement whereby, in effect, the Government pays for the costs of building the nuclear power stations and then 'sells' the plant back to the private sector. This is touted as being 'cheaper' than nuclear having to 'suffer' the same terms as renewable energy under the proposed CfD system.

Let us summarise some of the issues with this approach:

This would be a potentially very expensive way of doing it for the taxpayer for three reasons:

a) the taxpayer would lose all control over costs. In the case of a CfD system the electricity consumer is only committed to pay as much as is required to pay the difference between the wholesale electricity price and the strike price for the energy that is generated. This money should be used to pay capital and operating costs at the developer's own risk. But if the Government takes on construction risk as well as guaranteeing a premium price and pays whatever it costs (in other words write the developers a blank cheque) to build things, then developers will plough onwards to build plant with much less regard to costs or consequences compared to when the developer has to pay for cost overruns themselves.

b) This scheme has consequences for the public sector borrowing requirment (PSBR) in that until such time as the completed plant was sold back to the private sector the debt would appear on the government's debt record, either increasing public borrowing or leading to cuts in public spending (eg health, education, defence etc). People talk about the Government being able to borrow at lower rates than the private sector - true, but such borrowing comes at a high 'opportunity cost' for government spending - especially in current circumstances. Then, when the plant was sold back to the private sector, the private sector owners would still demand a steep premium to operate the plant. The taxpayer would suffer a double penalty - increased PSBR during what could be a long construction period followed by the electricity consumer having to pay a big premium on their bills. This hardly makes the situation better!

c) This idea privileges nuclear at the expense of what are much cheaper renewable alternatives. Why not do the same for windfarms and solar power arrays, external wall insulation, etc? Why should nuclear power get policy preference here?

In short, this idea only seems good if you regard nuclear power as being much more important than just about anything else in the British economy including renewable energy and energy efficiency - not my idea certainly, nor many other people's I would think.

It is also highly impractical for the Treasury to agree to this sort of thing, for much the same reasons as I have outlined. It would also clearly contravene EU state aid rules and would be unlikely to get EU state aid approval in the context of not at least giving the same benefits to renewable energy and energy efficiency.

In other words, for this to come about requires a rather heavy pressure on a political version of Douglas Adams'  'improbability drive' (for those that are familiar with the 'Hitchiker's Guide to the Galaxy').
So why does the pro-nuclear lobby plough on with such unlikely proposals? For much the same reason as Hitachi has bought its UK option nuclear option, desperation furnishes a belief that somehow a Government will come along that can see the beauty of the nuclear dream above all else in a world where many see it instead as an expensive nightmare.


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