The Government's draft Energy Bill contains increased support for nuclear power, but will not quickly dispel uncertainty for potential investors in low carbon Britain.
Electricity bills for consumers are likely to rise by between £100 and £200 as a result of price guarantees over long time periods to new nuclear power station developers for the electricity they will produce.
These guarantees come in the form of something called “contracts for difference", the difference being that between the cost of producing the electricity and the current market price.
Speaking on BBC Radio 4 this morning, both Tim Yeo, Chairman of the select committee on energy and climate change, and Ed Davey, Energy Secretary, attempted to argue that this was not a subsidy but an incentive.
Whatever the specifics in the bill, the remaining uncertainties surrounding it will continue to include:
- the legality of any subsidy for low carbon technologies with regard to European rules on state aid
- the identities of the counterparties for the contracts for difference
- whether the Treasury is going to keep its cap on the cost to consumers of the incentives
- and whether the government will accept the recommendations of the Committee on Climate Change that emissions need to be cut to 50g of carbon dioxide per kilowatt-hour by 2030, to provide certainty to investors.
It was the Treasury that put the limit on the cost to consumers of the solar feed-in tariffs. It would be ironic in the extreme if it were to make an exception in favour of nuclear power.
There are also uncertainties about whether the public will accept any policy that puts energy prices up.
On BBC's Today programme, the Energy Secretary Ed Davey reiterated Chris Huhne's promise last October that there would be no support for nuclear unless there were similar types of subsidy for renewable energy.
"Unless nuclear can be price competitive," he said, “as the industry says it can be, these nuclear projects won't proceed."
He said that the Bill will try to avoid the bias towards gas that exists at the moment in the market and create a market structure with different incentives.
"We need to decarbonise the economy in the most affordable way that is fair to consumers.
"No one knows exactly what price consumers will be playing for electricity in the future because no one knows how prices are going to rise.
"We do know that if we don't reform the electricity market then they would be rising by at least £200."
He reminded listeners that consumers in this country are in general paying less than in the rest of Europe for electricity.
Dr David Toke, senior lecturer in Energy Policy at the University of Birmingham, believes that nuclear energy in the UK is a "dead duck" that cannot be resurrected.
He compared trying to sell investment in nuclear power to trying to sell Greek government debt bonds: "ridiculously high rates of return are required which mean ridiculously high electricity prices have to be charged".
Dr. Toke said that nuclear power is "unnecessary in the mix and that the measures in the energy bill are designed, as Patricia Hewitt admitted, in particular to support nuclear in particular and not renewable energy or energy efficiency.
"The proposals are restricting them because they are cumbersome. Credit investment agencies don't like nuclear," he said. He predicts that nuclear newbuild “won't happen unless the coalition government tears up its manifesto commitments and gives the nuclear industry a blank cheque".
Tim Yeo, chairman of the Energy and Climate Change Select Committee, said the bill needs to address "very precise questions" about the incentives.
"We hope that the draft bill is going to introduce certainty for ," he said.
“Even if we didn't have a bill, prices are likely to rise," he said, “because the global demand for energy is rising very quickly, so fossil fuel prices will continue to rise."
He said that with the contracts for difference that are at the heart of the bill, “we need to know exactly who the counter parties are with whom the contracts will be made and what the credit status of that counterpart is".
“If it is the government who is guaranteeing the price, then that reduces the risk, which reduces the cost of borrowing capital, which will eventually reduce the cost of electricity. We need this not just for nuclear but also for the other renewable technologies which cannot compete with high emitting fossil fuel technologies.
"It's important to remember that fossil fuel plants are cheaper to build but more expensive to run, whereas with renewables and nuclear it's the other way round."
He pointed out that we already have subsidies for renewables in the form of the renewable obligation certificates, which affect electricity bill prices.
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