WHEB Commentary

Ted Franks

Subsidies muddle: Full-fat for nuclear, semi-skimmed for the rest


More rumours in the press today (19 February) about a guaranteed price for nuclear power in the UK. You can read it in The Guardian here, and it follows much speculation, including in the FT earlier this week.

The number in the frame appears to be around £100 per megawatt-hour (MWh). If this is true, it compares pretty closely to the current remuneration for an onshore wind farm. Using DECC’s numbers from April last year, windfarms could expect a total of about £105 per MWh. This is made up of c. £40 in Renewable Obligation Certificates, c.£5 in Levy Exemption Certificates, and then the market price for electricity, estimated by DECC then at c. £60. According to Bloomberg this is currently about £52.

But there are two crucial ways in which nuclear is getting a far richer deal than renewables. Firstly, the rumour is that the nuclear price would be guaranteed for 40 (yes, 40) years, whereas renewable support is only available for 20. Secondly, the wind farm is exposed to the market price for electricity, which can go down as well as up, whereas the nuclear plant wouldn’t be: its price would be 100% reliable. The advantages in raising capital are enormous.

But this subsidy headstart is just the most visible sign of a deeper favouritism. The total cost of building nuclear generation capability is barely reflected in the visible price per MWh: all of the security, value-chain support, remediation and decommissioning costs would inevitably end up on the taxpayer.
Worse still, once the projects have started, the Government is over a barrel. Any delays or overruns, and the developer can dig its heels in and ask for additional help. Good money will follow bad, in order to finish what we’ve started.

And who is the developer? Well, having shouldered aside both competitors and collaborators, the only name in town is Electricite de France (EdF), 84% owned by the French State. There could be a question as to how EdF balances the interests of its overseas customers with its domestic obligations. So this is a mess. Indeed, this is just the latest stage of a mess that has been slowing unravelling for roughly a decade, as successive governments have failed to step up to the plate.

Whether nuclear power has a role in climate change abatement and energy security is a complex question. But if there is to be a role for it, then we have to abandon the dream of a free market for electricity generation, because nuclear has never (anywhere) been developed in a market context. Instead the Government should accept that it is going to have to lead the evolution of the energy market. Then it can openly recognise the costs and benefits of the different technologies, and create the level playing field investors need.

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