E3G

Nuclear companies open new front in fight for government subsidies

By Tom Burke

The Concise Oxford English Dictionary defines a subsidy as “money contributed by the state to expenses of commercial undertaking”. The nuclear industry itself is on record that no nuclear power station has ever been built without subsidy. The challenge the industry now faces is either to do something that has never been done before, or to so transform the idea of a subsidy as to conjure away the money that must actually flow from the public purse to build any new nuclear capacity.

Without the political weight now attached to the issue of subsidies this would have been easy. A blizzard of words would have been generated to conceal it from view. The media would have quickly become bored with the technicalities and let the issue drop below the political horizon. Now everybody will be watching.

There will be plenty to see. The government already subsidises nuclear power by effectively insuring the industry against the bulk of its third-party liabilities in the event of a nuclear accident. As we have seen in the Gulf of Mexico, the low probability of an accident does nothing to reduce the scale of the consequences should it occur.

The government has also promised to cap the cost of managing the industry’s waste. The industry will be charged a fixed amount by the government to take waste off its hands. Since we have yet to build any of the facilities needed to handle this waste, this promise amounts to a blank cheque. Any difference between the charge set and what it actually costs will be a delayed subsidy ambushing a successor to Mr Huhne.

All those radioactive waste costs, so casually discounted away in the economic analyses underpinning Britain’s first nuclear scheme, have now turned up as a several billion-pound hole

But this is nowhere near enough subsidy to make new nuclear attractive to investors. There will also need to be a floor price for carbon. Strange how little faith there now is in markets. Imagine the outcry about economic distortion if you argued that there should be a floor price for any other traded commodity.

A floor price for carbon is essentially a unilateral tax on British consumers and businesses to artificially raise the price of electricity to boost the revenues of the predominantly foreign-owned nuclear suppliers. It is very difficult to see how this would not be “money contributed by the state”.

But even this will not be enough to make nuclear economically attractive. Hence the call for a level playing field. This is the starting gun on the battle over reforming the electricity market. This ‘level playing field’ really means that the mature nuclear industry should compete for the same subsidy as the emerging renewables industry. Thus the renewables obligation would be turned into a low-carbon obligation that would be a fourth subsidy to new nuclear build.

This is not a prospectus for a smart transition by Britain to a low-carbon future. It is simply a return to the inefficiencies and deferred bills of the last Conservative government’s Non-Fossil Fuel Obligation, which saw more than 90% of the subsidy – for that’s what it was – go to the nuclear industry.

Tom Burke is a founding director of E3G and a visiting professor at Imperial and University Colleges, London. He also advises Rio Tinto