By Gerard Wynn
LONDON May 16 A British government argument
that its planned support for new nuclear power stops short of a
subsidy, to satisfy EU regulators and a coalition pledge, only
adds to the sense of a policy in trouble.
The planned UK nuclear build programme would be the biggest
in the developed world, but is under threat after the exit of
The economics are not helped by delays and cost over-runs at
projects elsewhere in Europe and by low wholesale power prices.
The awkwardness of trying to stand by a commitment to "no
subsidy," even while it accepts the technology needs support,
risks boxing the government into a corner.
Its predicament illustrates how the technology is struggling
to maintain a toehold outside emerging economies where costs are
lower and there is vast unmet demand for electricity.
Whether the British programme proceeds will depend on cost,
including the amount of price support, plus public acceptance of
the technology and the government's "no subsidy" position, in
the aftermath of a Fukushima disaster which has entrenched
opposition among the environment lobby, its supporters and other
opponents of nuclear.
As Vincent de Rivaz, chief executive of one of the key
backers EDF Energy, said on Tuesday: "2012 is the defining year"
for the UK programme. It's also a wider test case for the
technology in the industrialised world.
The Conservative-led coalition government in May 2010 gave a
green light for new nuclear power plants, which drew
enthusiastic support from generators.
However, RWE and E.ON recently
cancelled their joint plan to build new reactors, citing
French utility EDF and UK-based Centrica
will decide this year whether to proceed with their joint bid,
alongside another partnership involving France's GDF Suez
and Spain's Iberdrola.
Their decisions hinge critically on the exact nuclear power
support price, under a so-called "contract-for-difference"
scheme paying a guaranteed, long-term price per unit of power
generated, whose cost will be passed to consumers.
In a twist which makes the scheme better value for money
than a fixed feed-in tariff payment, the exchequer can claw back
the difference if the wholesale power price exceeds the agreed
The government will likely indicate the level of support
price before year-end, to help kick-start investment.
The coalition government pledged "no public subsidy" for
nuclear in its "programme for government" in May 2010.
Former energy and climate minister Chris Huhne outlined how
a support price would still meet that commitment, in remarks two
years ago backed on Monday by his successor Edward Davey.
Their case seems to confuse state aid with subsidy, however,
arguing that price support would be equally available for other
low-carbon technologies - a possible exemption for state aid but
not a subsidy.
The International Energy Agency, energy watchdog to
developed countries and as good an authority as any, defines
subsidy as follows (in its annual World Energy Outlook):
"The overall value of subsidies ... is calculated here as
the price per unit of energy paid to ... producers for their
output over and above the prevailing market price (or reference
price), multiplied by the volume of energy supported."
Assuming that the agreed strike price, when finally
announced, is above the present wholesale power price - and it
wouldn't be economic otherwise - then it's a subsidy.
Huhne made the government's case as follows:
"There will be no levy, direct payment or market support ...
unless similar support is also made available more widely to
other types of generation."
"Arguably, few economic activities can be absolutely free of
subsidy in some respect, given the wide ranging scope of state
activity and the need to abide by international treaty
obligations. Our 'no subsidy' policy will therefore need to be
applied having regard to proportionality and materiality."
The government's case looks better suited to win a European
Commission state aid waiver, as the programme requires.
As Britain prepares electricity market reform which
effectively all but ends liberalised pricing, it seems in a
strong position to argue that support for nuclear is only
alongside a suite of other support for renewables and even gas,
as the country tries to balance energy aims including security
and climate change.
But the demands of keeping its coalition government
together, and in particular the junior Liberal Democrat partner
with their long-held opposition to nuclear, means it is sure to
try and stand by its "no subsidy" line.