In the midst of extensive media discussion about how much renewables cost, the costs of nuclear power hasn’t attracted as much attention. But given the prospect for steep increases in the amount taxpayers pay to subsidise the technology, a wider discussion about nuclear costs is probably on the horizon.
Speakers at a Conservative party conference fringe event in Birmingham yesterday which Carbon Brief attended agreed that, despite protestations from politicians to the contrary, support for nuclear does amount to a subsidy from the taxpayer.
Reports already suggest the government will have to subsidise spiralling construction costs for new nuclear power plants.
Data for 2012/13 from the Department of Energy and Climate Change (DECC) also indicates that the total maximum cost to the taxpayer of nuclear decommissioning is comparable to the total maximum limit set on support for renewables and energy efficiency via levies on consumer bills.
Background – too much gas
At a fringe event, organized by the free market thinktank the Centre for Policy Studies, political and energy analyst Tony Lodge laid out the case for nuclear.
Lodge argued that lack of planning since the electricity sector was privatised means the UK has failed to replace its energy assets. Old coal and nuclear power stations have been run intensively without being replaced and many are now reaching the end of their natural life. As a result, Lodge says, the UK is now too dependent on gas.
The new Minister of State for Energy and Climate Change John Hayes was also at the event. Earlier in the week, he told the Sunday Telegraph that he is “extraordinarily enthusiastic about nuclear” and “arguably the most pro-nuclear energy minister in living memory, I suppose ever”.
Hayes said that the UK is desperately in need of a more “mixed economy” and “plural market” on energy generation. He added that since privatisation:
“The effects of competition to drive down prices hasn’t happened. The effects of the market on replacing ageing stock hasn’t happened”
The most important challenge facing the government in expanding nuclear, said Hayes, is the financing – he stressed the need to make investment attractive, adding that:
“The Energy Bill and the Electricity Market Reform at its heart has to square nuclear from a commercial point of view”.
Government policy may already be working to attract nuclear investors. Alexey Kalinin of Russia’s nuclear energy conglomerate Rosatom praised the proposed contracts for difference (CFD) scheme as “â?¦ the right mechanism for providing confidence for investors”.
Asked about the financial impacts of supporting nuclear for the UK taxpayer, Mr Lodge said they won’t be clear until the government finalises a strike price for low carbon electricity – a fixed minimum price that power companies can sell their low carbon electricity for.
French energy company EDF Energy is currently in negotiations with the government over the level of support new nuclear reactors can expect, with a decision expected by the end of the year.
The speakers were unanimous that it is the UK taxpayer who will ultimately underwrite any strike price. But how much it’s going to cost overall is still an open question.
Government support for building nuclear stations and producing power from them doesn’t account for all of the cost of nuclear.
A few weeks ago Oliver Tickell in the Guardian suggested that 86 per cent of DECC’s budget goes on decommissioning nuclear power plant.
DECC told us that this figure is wrong, and suggested that the Guardian has probably incorrectly attributed the future costs of nuclear decommissioning to current costs.
DECC told us that according to its latest annual report, the costs of nuclear decommissioning for 2010/11 was Â£1.9 billion out of a total budget of Â£2.7 billion, or 72 per cent of total spend.
We haven’t looked at the annual report in any more detail – divining meaning from the departmental budget was a little beyond us – but this graphic illustrates the department’s proposed spend in 2012/3 – (click to enlarge):
Source: Business Plan 2012-15, DECC. p.12.
It shows the proposed cost of decommissioning and dealing with the “nuclear legacy” in 2012/13 is Â£2.59 billion. This is 76 per cent of the total limit on spend given for the entire department. Less than 86%, perhaps, but hardly insignificant.
This is slightly less than the maximum potential amount of Â£2.76 billion which is allocated to “levies and other”, the category which encompasses the cost of so-called green subsidies such as the Renewables Obligation, the Renewable Heat Incentive, Feed in Tariffs and the Warm Homes Discount. ‘Levies and other’ spend doesn’t come directly from DECC’s budget, but instead is paid via consumer energy bills.
Totting up the figures
Plenty of attention has been paid in government and the media to the potential costs of renewable power. This may in part be because those costs are paid on energy bills, and not as taxes.
It seems strange that very little attention has focused on the costs of nuclear. But perhaps, as the government finalises negotiations on a strike price for nuclear-generated electricity, this could be about to change.