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Nuclear levy "not a subsidy"

Ed Miliband says the energy market needs “radical reform”, but he denies his plans amount to a subsidy for the nuclear industry because all forms of low-carbon generation will benefit. The government has narrowed the range of energy market reforms it is considering. (1)

The government estimates that at least £110bn needs to be invested in the electricity sector over the next decade to meet ambitious carbon targets and keep the lights on. But companies are reluctant to build low-carbon generation plants, particularly nuclear reactors without knowing what return they will make on the huge up-front investment required. Officials are considering introducing a levy for low-carbon generation like nuclear with costs passed on to all consumers through higher utility bills. This could be in the form of a “low-carbon obligation”, similar to the existing renewables obligation, requiring suppliers to pay a higher electricity price to nuclear generators, depending on the carbon price. Miliband insisted that the reforms, which will not be finalised until next year, would not result in additional utility bill increases. He claimed bills will only rise by up to 8% over the next decade, even though regulator Ofgem estimates the increase will be as high as 25%.

The Department of Energy and Climate Change has considered imposing a floor on the carbon price – supported by some nuclear generators such as EDF of France – but critics believe it would be legally difficult to implement because it could interfere with the working of the ETS. (2)

The initial findings of the Energy Market Assessment were published alongside the Budget, narrowing down the options for market reform to incentivise the necessary investment over the next few decades. The report concluded that providing greater certainty on the current carbon price alone will not be enough to drive the long-term change needed. The report sets out a number of options for reform, and further work will be undertaken to assess these options, working closely with the industry, regulator and other interested parties, against criteria of cost-effectiveness, affordability and investor certainty. Proposals will be brought forward for consultation this autumn, with a White Paper following in spring 2011. (3)

Meanwhile Lord Mandelson announced a package of measures to strengthen the UK’s civil nuclear supply chain, at the centre of which is an offer of an £80 million loan to Sheffield Forgemasters which makes massive steel forgings for power plants. The loan offer, together with participation in the project from Westinghouse will enable Sheffield Forgemasters to build a major new manufacturing facility for ultra heavy forgings for civil nuclear power and other markets. Business secretary Lord Mandelson said: “a willingness to invest that will make the UK a leading provider in the nuclear and the low carbon supply chain.”

The government also committed to co-fund the creation of up to 1,000 apprenticeships per year in the nuclear energy sector. (4)

One MP commented: “that’s an interesting way to avoid subsidising the nuclear industry – subsidise their suppliers instead.”

(1) Guardian 25th March 2010
(2) Guardian 19th March 2010
(3) HM Treasury 24th March 2010
(4) Utility Week 17th March 2010