Capacity payments for low-carbon electricity generation: a back-door subsidy for nuclear power?

Press reports suggest that the Government will be proposing 'capacity payments' for low-carbon electricity generation (see Government blinks first in UK's nuclear stand-off (Sunday Telegraph, 2010-11-13) and 'More incentives needed for nuclear', says Energy Minister Charles Hendry (Daily Telegraph, 2010-11-05)). It is not yet clear exactly what this means but it sounds like payments for low-carbon generating capacity that may be kept in reserve in case of shortfalls from other sources.

Any such scheme must take account of the fact that nuclear power is not a zero-carbon source of electricity. It should also take account of the fact that nuclear power is inflexible and cannot be switched on or off quickly, and its output cannot be varied quickly -- it is not well-suited to be a backup source of power.

If indeed 'capacity payments' mean payments for low-carbon sources of electricity that may serve as a backup, and if they are made to the operators of nuclear power plants, they should also be paid for the following sources of low-carbon electricity:
  • In the UK:
    • Enhance Geothermal Systems (EGS). These are low-carbon sources of electricity that can provide power on demand quickly and flexibly. It has been estimated that EGS in the UK could provide nearly 10% of the UK's electricity
    • Hydropower. This is a low-carbon source of power that can be turned up or down flexibly, according to demand. Capacity payments should be made to existing hydropower schemes in the UK and also to any new schemes, including small-scale hydropower generators.
    • Electricity stores. Any system that can store electricity and make it available when required should be eligible for capacity payments. This includes pumped storage schemes such as the Dinorwig pumped storage power station in North Wales, and it would also include Compressed Air Energy Storage (CAES) systems and tidal lagoons with provision for pumped storage. As electric vehicles become more widely used, there is considerable potential to use their batteries as backup stores for the grid -- so they should eligible for capacity payments too.
    • Negawatts. Since electricity saved is equivalent to electricity generated, capacity payments should be available to facilities that can cut their demands when there is a shortfall in electricity supplies, including, for example:
      • Cold stores that can forego demand for a time.
      • Factories that are willing to allow supplies to be cut off until supplies can be restored.
      • Any other user of electricity that is willing to have their supplies capped until supplies are restored.
  • In mainland Europe. Since there is now a single market for electricity throughout Europe and, since the UK mainland is connected to the rest of Europe via a cross-channel link, a link to Northern Ireland and links from there to Eire, the soon-to-be-completed BritNed link to the Netherlands, with more connections planned, low-carbon sources of electricity throughout Europe that can provide power on demand should be eligible for capacity payments too. These include EGS, hydropower, electricity stores and negawatts, as before, and, in addition, concentrating solar power plants in Spain and elsewhere that, with heat stores and backup stores of heat, can provide power on demand, day and night.
In case the European connection seems to be merely theoretical, we should not forget that, in recent years, France has required supplies of electricity from the UK and elsewhere to make good shortfalls in supplies from its nuclear power plants (see France imports UK electricity as plants shut (The Times, 2009-07-03), Climate change puts nuclear energy into hot water (New York Times, 2007-05-20), Our nuclear summer (Huffington Post, 2006-08-12)). Far from being a backup for other sources of power, French nuclear power has itself needed help from those other sources.

If 'capacity payments' are focussed exclusively on nuclear power plants in the UK and are not made available to the other low-carbon sources that can provide power on demand, both in the UK and in the rest of Europe, then 'capacity payments' would be a subsidy for nuclear power, and would probably be illegal under European laws governing competition and state aid.