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UK Electricity Market Reform – nuclear funding from thin air?

David Toke

As the public reels from the impact of seemingly never-ending fuel price rises, the UK Government seems to be on the way to pulling off a conjuring trick of shifting incentives towards nuclear and away from renewables, without hardly a whimper of opposition. And despite the tragedy at the Fukushima Dai-ichi nuclear plant in Japan, unlike in countries such as Germany there is no cast iron guarantee that the UK will seriously water down its future nuclear ambitions.

Part of the explanation for the apathy on the part of renewables proponents towards Government plans lies in the complexities of the Government's Electricity Market Reform (EMR) consultation document, issued in December, and which baffles most people.

People have also placed a lot of trust in the Government's green credentials, and this probably helps further explain the muted response.

But some people have issued warnings that the Government's green record faces mounting criticism, and an assessment of the Government's plans for renewable energy bear this out very strongly.

Sea-change in policy

There is little general understanding of the sea-change in energy policy that is signalled by the EMR. The Government has seized the notion of “green energy”, as a means of masking the fact that nuclear power is now the central aim of Government development of non-fossil generating capacity. It sees renewable energy as a distinctly junior partner.

People have not realised that despite Government support for new nuclear being heralded since 2006, it is only with the publication of the EMR that the funding, yes, the subsidies, that can make this actually happen, seem likely to materialise. Also, people do not fully realise that the Government's proposals seriously threaten the existing renewable energy programme.

The whole general thrust of Government policy on electricity market reform is driven by a desire to put the nuclear subsidy system in place. Renewable energy interests take second place, a long way behind nuclear, in this new order.

Party politics is paramount here, because both the Conservative and Liberal Democrat election platforms promised that there would be no subsidies for nuclear power stations. So the Government's proposals on EMR seem to have been fashioned partly by a desire to mask this broken election promise.

And this is part of the reason that renewable energy is being threatened with a funding mechanism - the low carbon mechanism - which does not suit it.

Obscure funding mechanism

A very obscure way of funding both nuclear and renewables is proposed - namely Contracts for Differences. This will minimise the chance of public scrutiny concerning how much electricity bills will need to increase to fund new nuclear power stations. Nuclear developers may well be given ‘guarantees’ that the state will ensure extra subsidies when constructions costs overrun (as they always do).

Renewables, of course, do not receive, and will not receive, such guarantees. The role of renewables in this new system of obscuring nuclear funding is to provide ‘green’ public relations cover. Both renewable energy and nuclear power will be funded from the same set of policy mechanisms. Both are called ‘green’, and so the political problem of scaling back the renewables programme can also be obscured.

People have not realised that despite Government support for new nuclear being heralded since 2006, it is only with the publication of the EMR that the funding, yes, the subsidies, that can make this actually happen, seem likely to materialise.

Upon taking office the Coalition Government was faced with targets, under the Renewables Obligation, to supply 30% of electricity from renewable energy by 2020. Then there is the Feed-in Tariff system to fund small renewable projects. This system held out a promise to fund a range of renewable technologies, and the Government has on its books - in various stages of planning and issue of leases by The Crown Estate (TCE) - enough wind power (the bulk of it offshore) to supply around 50% of UK electricity supply.

This in itself is a problem for the nuclear power industry, since this cramps the possibilities for nuclear expansion. This is especially true given the fact that there are many GWs of combined cycle gas turbines also coming on line; including those in planning there are enough CCGTs to supply nearly 70% of UK electricity at average load factors.

We hear a lot about shortages of capacity, but the real problem is that there is too much planned capacity. The nuclear industry knows full well that if renewables are not reined in there will be a serious shortage of space for its expansionist aims.

Curbs on renewables

The Government has already announced it wants to curb the solar PV programme (already quite small by European standards), and Energy Minister of State Charles Hendry announced on 10 February a ‘new’ approach to onshore wind, whereby “wind turbines should be positioned where the wind resource is strongest”. So, he said, “this year we are bringing forward a full review of the funding mechanism, so we can ensure subsidies will not make it attractive to put wind farms in unsuitable locations.”

Companies like Ecotricity, which build wind farms on lowland and brown field industrial sites that are of little conservation value, are especially targets – mainly because, it seems, they result in complaints being made to Conservative MPs. Instead, subsidies are likely to be paid to nuclear power stations, whose costs cannot be guaranteed to be any less than the costs of energy from even the so-called low wind speed wind farm sites.

But perhaps the biggest (in capacity terms) cut in the renewables programme is likely to be in the curbing – perhaps demolition is a better description - of the offshore wind power programme.

The Government, in its EMR proposals, want to ‘auction’ contracts to supply renewables so that the contracts go to the lowest bidders, in terms of price of electricity to be paid.

This system failed miserably in the 1990s (under the ‘NFFO’) to develop much renewable energy, because the large majority of developers either made uneconomic bids or failed to achieve planning consent.

As RenewableUK has commented, the Government proposals have no contact with reality. Apart from the problems with a revived NFFO style system (not to be confused with a conventional ‘fixed’ standard Feed-in Tariff), this mechanism is completely incompatible with the process undertaken by The Crown Estate (TCE).

TCE has already issued leases to developers; they cannot be ‘auctioned’ (or whatever) as is done in Denmark.

A nuclear-dominated future?

Renewable UK hopes that its well-informed lobbying will pave the way for a better system - for funding onshore and offshore wind power; and also wave and tidal stream projects - than is implied by the EMR proposals. The Scottish Government hopes also to defend the incentives for renewables, including its own plans to support marine renewables.

Maybe there is still some hope to salvage something – but how much? At the end of the day the renewable cause is handicapped by the need to fit in with the needs of what is now a politically-dominant nuclear power lobby.

The Renewables Obligation will continue until 2017, but after that time it looks very much like nuclear power will be funded to provide the bulk of the ‘green energy revolution’. This of course is a reverse parody of the notion that renewables are the future, and conventional fuels should only be seen as a bridge to that future.

No! Our energy leaders know better. Windmills and other renewables are a stopgap destined never to produce more than 15-20 per cent of our electricity. Roll on the fast breeder reactors!


David Toke is a prominent author, academic and renewable energy expert. His latest book is on ‘Ecological Modernisation and Renewable Energy’.

Renewable Energy Focus, Volume 12, Issue 2, March-April 2011, Pages 24-25

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bilgewater said

20 July 2011
India,the US TVA,and China are all working on thorium reactors which could replace uranium based reactors.I think the UK would be wise to send the Cambridge and Oxford and Sandhurst engineers to these nations for some instruction.

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