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Hidden Subsidies for Nuclear Power

Whilst this blog is usually concerned with solar power, today's entry will cover the nuclear industry. A secret document was leaked to the Guardian recently plans to subsidise nuclear power through changes to electricity bills had its details revealed at the end of last week. This comes despite the energy minister, Charles Hendry, stating otherwise on the 16th of June when he set out the plans for how the nuclear industry would be supported by the government.

The leaked document in question laid out in plain detail plans set to make use of “contracts for difference” to subsidise nuclear energy. This means that those companies operating nuclear power plants could receive higher charges for their energy compared to fossil fuel power stations.

This will add to arguments over how energy policy should be set out in the UK, and will lead to a massive amount of trouble for the Lib Dems who originally fought the general election with a stance completely against nuclear power. Others may argue that at least favouring nuclear energy over traditional fuel sources is a good way to reduce the UK's energy reductions. Opponents of nuclear energy will be furious, and the main issue is that this directly contravenes pre-electoral promises.

Fiona Hall, who is leader of the Lib Dem group of the European parliament interested in energy said that she had no doubt that the contract for difference was a subsidy - “Industry on all sides believe this is a subsidy”, calling for the UK court of auditors as well as the EC to provide a legal decision over this issue, believing that any such subsidy runs against the agreement initially set up by the coalition.

The opinion of Green campaigners is that the Lib Dems have been talked into permitting greater energy bills to lead to greater profits for nuclear companies only through terming them as support for “low-carbon power”, although many would be in favour of this.

The leaked document, which was supposed initially to be a submission to the European Commission, has been confirmed by the government as a genuine article, declares “Our reforms will put in place a regulatory framework based on feed-in tariffs for all low-carbon technologies, which will allow younger technologies to mature so that in the near- to mid- term future they will be able to compete in the open market... in time, we expect that this regulatory framework will enable different low-carbon technologies to compete against each other on a level playing field for their appropriate role in the energy mix.” This shows no mention of “low-carbon” not including nuclear. Indeed, the main reason that nuclear cannot currently compete on cost with fossil-fuel based power is largely due to the legal costs, which have continued to ratchet upwards the price of nuclear power. For example, a nuclear power station based in the US was delayed by 2 years at an increased cost of $1 million per day because campaigners found the waste water to be marginally over the legally-prescribed safe limit. This meant that the plant had to include a pipe to transport the water two miles further into the sea. As the required regulation continues to increase, these legal “loopholes” allowing anti-nuclear campaigners to fight plants in court will only increase in number and incurred expense too.

There is already a crisis in place for the government over the need for a set of new reactors being brought in to replace worn out generators – the French company GDF Suez this week warned that greater financial incentives were needed, including a strengthened price on carbon dioxide emissions, in order for it to justify going ahead with its construction plans.

Under the “contracts for difference” arrangement, the government would allow energy firms to sign long-term contracts prioritising the purchase of low-carbon power, but not necessarily offering much of a premium compared with the normal electricity price – the long-term certainty that comes with such contracts increases the attraction for invests to plan and spend their money. The contracts will take effect from 2014 – experts are concerned that the complexity will make the execution difficult, and in any case resulting in unfair distortions.