UK nuclear hits the brakes over low carbon taxes and lack of loan guarantees
Coalition government’s anti-nuclear energy minister leads the “no subsidies” chorus
A study prepared by KPMG and published July 17 by RWE Power, which wants to build new nuclear reactors in the UK, says forget about it unless the “carbon floor price” is raised to [L]80/ton CO2. Britain's new generation of nuclear power stations will not be built if the Government refuses to support them beyond the current insufficient carbon price mechanisms, the KPMG report said.
The KPMG report called for early decisions to radically change the UK electricity market to get nuclear energy back in the game. It said that measures to bring investors to the table must do more than just raise the carbon tax. While the report only alludes to the concept of loan guarantees, it seems to offer the government a way out of its hard line position of no direct subsidies for new nuclear plants.
Huhne’s line in the sand
The current coalition government has drawn a line in the sand saying no government direct subsidies will be provided for new reactors. Yet, loan guarantees, which pay for themselves through the equivalent of insurance premiums, have not been aired in the public debate about the future of nuclear energy in the UK.
Instead, the coalition government, led by energy minister Chris Huhne, (right) has chanted a mantra of “no subsidies” while simultaneously dismantling the infrastructure planning mechanisms that drove the development of new reactors under the previous Labour government.
Volker Beckers, CEO of RWE, told De Spiegel, one of Germany’s major newspapers, on July 21 that the appointment of Huhne is “a political catastrophe.” Ian Parret, an energy analyst at UK consultancy Inenco, agreed telling the newspaper the Liberals won the election with an anti-nuclear plank in their political platform, and “they are setting the tone for policy decisions.” (Update 07/24/10): RWE's PR office disputes that Beckers actually said this.)
On July 15 Huhne announced that the government would initiate a six-month long review of all nuclear energy infrastructure planning documents. The announcement came as an unpleasant surprise to the utilities which had participated in the development of the policy framework under the Labour government. It resulted in the selection of 10 sites for new reactors. No it appears the review could completely unravel the hard won agreement on where to build new reactors. The sites were chosen in part for proximity to existing reactors and the layout of the nation’s electric grid.
Energy investment subsidies for renewables
This isn’t the first time the utility CEO has sounded off about the new uncertainty coming from the coalition government over nuclear energy. On July 10 Beckers, told the Sunday Telegraph that nuclear deserves the same government support and solar, wind, and tidal power projects. Electricity from these projects costs as much as $0.25/kWHr and is unsustainable even in the UK’s fearsomely expensive electricity markets. Beckers called wind power “hugely expensive” even though his utility is in the business.
He said that because of the current situation, “investments go only to gar-fired power stations or the renewable sector.”
“Only if you have a level playing field do you leave it with market powers to make the right investment decision. If you have a stimulus for certain technologies, all the investments go into one specific technology and that could ultimately lead to cluster risk.”
World Nuclear News reported July 19 that massive nuclear energy investments will be needed in the UK for the country to meet its ambitious emission reduction targets.
"The current approach to low carbon generation relies on government interventions which are inconsistent with one another," the [KPMG] report says. "The creation of a more consistent market design to reward low carbon energy or capacity could enable investment in new nuclear generation - and other low carbon investment - to proceed. The key issue is whether there should be a single market for all low carbon electricity or multiple markets for different technologies."
Several UK nuclear industry trade associations have made similar statements. They point out that in the next decade the nation will need 30 GWe of law carbon electricity generation which experts estimate will require [L]200 billion. The size of the current nuclear new build is about 15-18 GWe assuming all ten sites now on the short list build out to their full capacity.
Are loan guarantees possible in the UK?
Instead of drawing a line in the sand, Huhne seems to be hiding from energy market realities by sticking his head in it. De Spiegel also quoted Chatham House energy expert Walt Patterson who said a the government actually has a range of options, presumably including loan guarantees, which are not direct subsidies to the nuclear industry. However, the problem is Huhne is a “true believer” when it comes to his opposition to nuclear energy. “He seems quite convinced,” Patterson said.
The KPMG study seems to be pointing to loan guarantees even if it doesn’t cal them out by name. It said the rapid expansion of the nuclear power sector in the UK, requires the commitment of investors to pay for the new build. This in turn requires significant changes to policy, market mechanisms, and the regulatory framework to make nuclear energy attractive.
The UK could take a page from President Obama’s playbook. He is supporting new nuclear power plants, and the thousands of jobs their construction will create, with billions in loan guarantees which do not involve government spending. The next stop for KPMG and RWE’s CEO ought to be U.S. Energy Secretary Steven Chu for a heart-to-heart talk about it.
UK Reactor site lineup
Here’s what’s at stake for the UK new nuclear build. In March 2010 the first two reactor sites were selected for development. Horizon Energy, a consortium of European utilities RWE and E.ON, will build 3,600 MW at Wylfa Wales and another 1,600-2,400 MW at Oldbury in Gloucestershire. Reactor vendors Areva and Westinghouse are in competition to supply equipment for these sites.
Next up British Energy and Electricie de France are proposing to build 3,300 MW of nuclear powered generation capacity at Hinkley Point in Somerset and at Sizewell in Suffolk. All four reactors will be Areva EPRs at 1,650 MW each.
Finally, a consortium composed of Spanish utility Iberdrola, Franch construction giant GDF Suez, and U.K. utility Scottish & Southern has plans for 3,600 MW using an as yet unspecified reactor design at Sellafield in Cumbria.
The key to site selection is access to existing grid connections to bring electricity to customers. See graphic below.
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Dan Yurman publishes a blog on nuclear energy titled 'Idaho Samizdat' http://djysrv.blogspot.com. It covers the nuclear energy industry globally including new reactor investments, economics, politics, and technologies. He is a frequent contributor to the ANS Nuclear Cafe http://ansnuclearcafe.org and to Fuel Cycle Week http://fuelcycleweek.com
Other Posts by Dan Yurman
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