The energy bill: what’s the real cost?

Before the end of this month, the Coalition will publish a new Energy Bill, which sets out its strategy for UK ‘energy futures’. Paul Dorfman has an idea who is likely to reap the highest benefits and guess what? It’s not you or me …

The Department of Energy and Climate Change (DECC) has been relentlessly optimistic about its Electricity Market Reform plans for the Energy Bill, despite strong and sustained criticism from a scientific advisory Committee on Climate Change, a Parliamentary Select Committee on Energy, and more recently, a House of Lords Working Group who have all concluded that the reforms are ‘unworkable’.

Given that a recent report by the LSE estimates that £330 billion will have to be invested in energy infrastructure over the next two decades, the stakes could hardly be higher. But the need to balance our energy budget is not the only issue here. What’s also at stake is public trust in government.
Throughout its time in power, Coalition energy ministers have stated, time and again, that there will be no subsidies for nuclear power. Ed Davey, the current Coalition Secretary of State for the Department of Energy, has so far played a straight bat on this. In 2006, before the Coalition existed, he concluded that “a new generation of nuclear power stations will cost taxpayers and consumers tens of billions of pounds…in addition to posing safety and environmental risks, nuclear power will only be possible with vast taxpayer subsidies or a rigged market.” More recently he has confirmed that “there will be no blank cheque for nuclear – unless they are price competitive, nuclear projects will not go ahead.”
Although these statements could hardly be clearer, the Coalition Government is now considering capping onshore wind development and handing nuclear power large subsidies in the forthcoming Energy Bill. The key to this is what’s called a ‘strike price’.
Through the Energy Bill the government will guarantee a set price for nuclear energy – a ‘strike price’. This price will be well above the market price for electricity, and this means that energy consumers will be paying the difference. This ‘contract’ will be locked in for very many years, possibly decades. The impact of this contract will be to shift the economic risk of building new nuclear facilities from the nuclear corporations to the consumer.
So with the stroke of a pen, a ‘subsidy’ is transformed into a complex financial ‘contract for difference’, economic ‘risk’ is translated into fiscal ‘security’, and corporate liability for new nuclear cost over-runs are simply passed on to the UK consumer. And these cost overruns have been enormous.
There are two nuclear reactors currently being built in Western Europe, one in Finland and one in France. Both are hugely over-budget and over-time. Both use the same technology as is proposed for the UK, the EPR supplied by the French company AREVA. The Finnish reactor was planned to go online in early 2009, but the Finns are now crossing their fingers and hoping to complete around late 2014.
Originally costed at EUR 3 billion, the reactor is now priced at 6 billion and rising. Because of this, the Finns are in a billion euro legal battle with the French nuclear construction firm AREVA over who pays these extra costs. And things are no better in France. Here, the builder, EDF, (the company that would build in the UK), forecast that the reactor would be complete this year, but time-scales keep slipping and it now says it would hope to complete the project around 2016. Originally priced at just over 3 billion euros, this reactor is also currently estimated at 6 billion and rising.
Whilst thinking through the moral and fiscal implications of the UK government’s energy strategy, we could also argue that a more responsible way forward can be found closer to home. Germany uses 20% of all European electricity, and its decision to go nuclear-free by 2020, hitting power and CO2 targets by investing in renewables and energy efficiency, grid network infrastructure, and planning for trans-boundary pumped storage hydroelectricity, with CHP gas and some coal as interim measures, will prove significant for all European energy policy.
Germany’s non-nuclear energy policy is framed in the context of scientific-technological achievement twinned with economic expansion. As the German Chancellor Angela Merkel says “We can achieve a transformation to efficient and renewable energy, with all the opportunities that brings for exports, developing new technologies and jobs’.
Germany has produced record volumes of renewable energy in the first half of this year, and its National Association of Energy and Water (BDEW) recently published estimates revealing that, from January 2012 to June 2012, renewable energy technologies accounted for more than a quarter of the country’s electricity supply for the first time ever. Actually, the production of renewable energies in Germany is expected to grow faster than the government’s own initial forecast and account for almost half of the country’s electricity within a decade.
So, in future, when you are trying to distinguish between Coalition government rhetoric and economic reality, reflect on the cost of your own energy bills and ask how much is heading into the deep pockets of nuclear corporations?
Consider also whether in simple fiscal and practical terms, and in a deeper social and moral sense, the next energy revolution can and should be renewable.
Dr Paul Dorfman is Joseph Rowntree Charitable Trust Nuclear Policy Research Fellow, Founder of the Nuclear Consulting Group, and a lead author of the European Environment Agency Environment Agency report: ‘Late Lessons from Early Warnings’ Vol.2, due to be published Jan 2013.
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