The UK Government has finally published its Draft Energy Bill which includes proposals for so-called Electricity Market Reform as promised in the Queen’s Speech on 9th May. Energy Minister, Ed Davey insists the proposals will provide a market structure to help keep the lights on, but without any subsidy for new nuclear reactors.(*1) Almost everyone else agrees this Bill is about exactly that - setting up a complicated series of support mechanisms behind the veil of market reform – in order to subsidies nuclear.
The right of center Telegraph newspaper describes the proposals as “the biggest shake-up of the industry since privatization”, intended to secure £110bn of investment in power generation.(*2) The Bill is supposed to keep expected increases in energy bills down, reduce carbon emissions and secure electricity supplies. But Bridget Woodman, of the energy policy group at the University of Exeter, said: "Rarely can an energy measure have attracted such universal condemnation. The key players – renewable generators, most energy companies, consumer groups and commentators – all recognize that [it] won't deliver a sustainable energy future ... The government is in a hole and needs to stop digging before it's too late to put the UK on a path to a sustainable energy future."(*3)
Keith MacLean, head of policy at one of the UK’s Big Six utilities, Scottish and Southern Energy, says it’s a complex system “designed to mask what is effectively a subsidy for new nuclear power, which could derail investment in renewables”. Another of the Big Six RWE, which together with EON recently pulled out of plans to build new reactors at Oldbury in Gloucestershire and Wylfa on Anglesey, says the Energy Bill could add billions of pounds in unnecessary costs for the industry.(*2)
Energy Secretary Ed Davey was pressed on BBC Radio 4 on whether the changes amounted to a subsidy for new nuclear. But rather than admitting, as almost every commentator says, that new reactors are too expensive to be built without some form of subsidy he continued to cling to the illusion that "There is going to be no public subsidy for new nuclear".(*4) (The predicted cost of building two new EPR reactors at Hinkley Point in Somerset has increased from £9 billion to £14 billion).(*5)
Davey says the idea of the “Contract for Difference” or Feed-in Tariff proposed in the Energy Bill is that by giving investors more certainty, the cost of borrowing will come down. "What we want is a market structure that makes sure we keep the lights on.”
The interviewer was having none of it. He said the Coalition Agreement and the European Commission prohibit subsidies to new reactors and so you are trying to get around that by calling it something else, and offering long-term contracts to would-be nuclear-builders.
Davey calls the proposals in the Energy Bill the most affordable way to get low carbon energy in a secure way. Yet many in the industry have poured scorn on the idea that the proposed reforms offer the cheapest route to securing investment.(*2)
Davey is trying to make his reforms sound like a simple tweaking of the free market - despite the fact that they will virtually dispense with the free market and replace it with fixed long-term contracts. He says “there will be no blank cheque for nuclear. Unless nuclear can be price competitive - as the industry says it can be - these nuclear projects won't proceed".(*4)
In actual fact the Draft Energy Bill doesn’t tell us much more than we already knew. It looks to be largely in line with the expectations established in last year's electricity market reform (EMR) proposals. There is confirmation of the four-pronged regime based around contracts for difference (CfDs), a new capacity mechanism to support back-up power plants, a carbon floor price to provide stability for investors, and an emissions performance standard to ban coal-fired power plants. But we didn’t get any of the answers needed to calculate the viability of future renewable energy schemes, particularly offshore wind farms, or nuclear reactors. We will have to wait for the crucial numbers that will determine which “low carbon” projects proceed. The simple fact is that new investment in nuclear and offshore wind will not really begin to flow until the government confirms the “strike price” at which CfDs will be offered for different technologies. If the market price for electricity falls below this guaranteed “strike price” the nuclear or renewable energy operator would be paid the difference.(*6)
But all the signs are that Davey is being disingenuous, and that the Government is determined to make sure new reactors are built whatever the cost. His Liberal Democrat Party, which is a junior member of the Coalition Government is still, in theory, opposed to new reactor construction, and only agreed to allow the Government to pursue a pro-nuclear policy on the basis that there would be no public subsidies. Only a couple of weeks ago the Party’s Deputy Leader, Simon Hughes MP, told the House of Commons that the policy of not subsidizing new reactors meant “it will not happen because it has always needed to be subsidized”.
But not everyone in the Department of Energy and Climate Change seems to agree with Davey’s idea that new reactors will only be built if they are cheap enough. A spokesperson told The Guardian that “New nuclear is where the future lies for long-term energy security. This is why it is so important we begin the transition on market reform today."
Davey has confirmed talks have begun between his Department, EDF Energy and Centrica- the companies planning to make a final investment decision before the end of 2012 on whether to build two EPR reactors at Hinkley Point C. The talks will provide with EDF and Centrica with some firmer guarantees in order to make sure plans for Hinkley Point C go ahead.(*7) With RWE and EON having recently dropped their UK nuclear plans, EDF has the Government over a barrel, and will no doubt be telling the Energy Department what strike price they want before they agree to go-ahead – in effect writing their own subsidy cheque from the electricity consumer. The strike price rates will not be finalised until 2013 - and not available to generators until 2014 – but under the terms of the draft Energy Bill, the government can issue a likely strike price in advance of formalising the rate and introducing CfD in 2014.
Confirming this nuclear enthusiasm, Conservative Junior Energy Minister Charles Hendry says the Government has done everything possible to ensure that EDF and Centrica go ahead and build another two EPRs at Sizewell in Suffolk. “We have worked closely with EDF and we are confident the outcome will be positive.”(*8)
The Green Party’s only UK MP sums up the view of environmentalists in Britain when she says: “the Electricity Market Reform proposals expose a clear bias towards nuclear and gas. We know that subsidising new nuclear would fly in face of the Coalition’s promise not to use taxpayer’s money for nuclear, yet no matter how much Ministers deny it, EMR will gift EDF and other potential nuclear operators with billions of pounds in subsidies over the lifetime of a power station."
Rather like Humpty Dumpty when it comes to nuclear subsidies the word means just what the Government chooses it to mean — neither more nor less. As Friends of the Earth point out: the Energy Bill is a desperate attempt to prop up the dying nuclear industry and a way of letting in dirty gas by the back door, even though soaring gas prices have led to rocketing bills. More gas and new nukes will only add to bill payers' pain.
Start of earthwork preparation of Hinkley site put back. Meanwhile, mid-May, EDF decided to delay the start of massive earthworks needed to prepare the ground for a new nuclear power station at Hinkley Point, dealing a further blow to the government's energy plans. Reports of rising reactor costs and the election of François Hollande as French president, with promises to cut back on nuclear power, have dented confidence. Work to move millions of cubic meters of soil and rock at the Hinkley site was due to begin in August, according to West Somerset council's planning department. But EDF staff has been told the work will now start in 2013.
Guardian, 14 May 2012
*1- DECC, 2 May 2012: http://www.decc.gov.uk/en/content/cms/news/wms_energybill/wms_energybill...
*2- Telegraph, 21 May 2012: http://www.telegraph.co.uk/finance/newsbysector/energy/9280967/Energy-re...
*3- Guardian, 22 May 2012: http://www.guardian.co.uk/environment/2012/may/22/government-announces-e...
*4- BBC Radio 4 Today Program, 22 May 2012 http://news.bbc.co.uk/today/hi/today/newsid_9722000/9722693.stm
*5- Sunday Times, 20 May 2012: http://www.thesundaytimes.co.uk/sto/news/uk_news/Environment/article1042...
*6- Business Green, 22 May 2012 http://www.businessgreen.com/blog/james-blog
*7- Construction News, 22 May 2012 http://www.cnplus.co.uk/news/government-starts-edf-talks-to-ensure-hinkl...
*8- East Anglian Daily Times, 23 May 2012: http://www.eadt.co.uk/news/sizewell_new_power_station_set_to_get_go_ahea...
Contact: Pete Roche