Who will fund the UK’s energy plans?
The government says putting nuclear power at the core of the UK’s draft energy bill will cost consumers an extra £100 per year. But what if the nuclear industry refuses to build new plants here?
When it comes to explaining why our electricity bills will inevitably rise over the next few years, Energy Secretary Ed Davey does not beat around the bush:
“What we want is a market structure that helps keep the lights on. The real challenge for the UK, let’s face it, is energy security,” he said on Tuesday, adding: “We have nuclear power stations coming offline, we have coal power stations coming offline, and actually we have electricity demand going up as we see the transport sector increasingly becoming electrified.”
Around one-fifth of the country’s exisiting electricity generation is due to close over the next decade. In addition, in order to meet our obligations under EU directives, 30 per cent of the UK’s electricity should come from renewable sources by 2020. And, as the Department of Energy and Climate Change (DECC) points out, this will bring new considerations into play as “a significant proportion of new generation is likely to be more intermittent and less flexible.”
Lack of investment
The government is also concerned that the rate of investment in renewing our energy infrastructure is too slow – DECC has warned that up to £110bn of investment is likely to be required by 2020, which is more than double the current rate.
The draft energy bill being published today therefore outlines reforms to the energy market which the government says will encourage investors to put their money into a lower-carbon energy future.
Nuclear Europe
In Germany, although atomic energy provided 23 per cent of the overall power supply, most voters were against it, and after the Fukushima nuclear crisis in Japan, the German Chancellor Angela Merkel announced the immediate closure of the seven oldest power stations, and the phase-out of the rest. Germany sits at the centre of the european power grid, has various options to import energy in the event of a shortfall.
France is the world's most nuclear-dependant country, with 58 reactors producing nearly 80 per cent of its electricity. It remains a leader in nuclear technology, from reactor design to the use of recycled fuel. The newly-elected President Francois Hollande is known to be more sceptical about the industry than his predecessor, and has pledged to reduce nuclear's share of the energy mix from 75 per cent to 50 per cent.
However in other european countries, pro-nuclear policies are more in the ascendant, with the Czech Republic, Slovakia, Finland and Poland all either expanding or planning new nuclear programmes.
Malcolm Grimston of the Chatham House Energy, Environment and Development Programme, told Channel 4 News that the challenge facing the UK government was the lack of long-term policy-making in relation to energy supply: “we need 80 year investment, but there is a minor change of the rules every 18 months and a major change every 10 years.”
Read more: What is the UK's energy future?
The plan to reform the energy market was welcomed by industry bodies, but some questioned the speed at which the government’s plans could be implemented. Dr Gordon Edge of RenewableUK, which speaks for the UK wind and marine renewables industry, warned:
“The timeline DECC has laid out looks very challenging to bring in wholesale change to the electricity market… We urge them to work with us on the overall timetable so that developers can be given the surety they need to fully commit to proceeding with their next generation of projects, providing the supply chain with the final spur to invest in the UK and create badly needed jobs.”
Market Reform
His concerns were echoed by Malcolm Grimston: “the jury is still out – even with energy market reforms of this nature – as to whether we can invest in time. I think we may have missed the boat already, in which case we will have to go back to gas, with consequences for our environmental obligations.”
The draft bill will propose the establishment of “feed-in tariff contracts for difference” – a mechanism to provide “stable financial incentives to invest in all forms of low-carbon electricity generation”. The government insists that such a system does not represent a subsidy for the nuclear industry, as this would be illegal under EU law. But with energy consumers likely to face a levy on their bill to maintain that constant price, it has led some to ask whether a “contract for difference” is a subsidy by any other name.
New entrants in the low-carbon energy market are concerned that the proposed energy market reforms will favour the big six energy companies. Dr Edge says the renewables industry is engaging with DECC over how to ensure independent generators can effectively sell power into the open market. For example, in onshore wind generation there has been a big peak in the 5-20MW range, with many schemes operated by smaller independents.
