22 May (NucNet): Incentives will be needed if new nuclear power plants are to be built in the UK, but there will be no “blank cheque” for operators and nuclear will need to be price-competitive or it will not proceed, the country’s energy secretary said today.
Ed Davey told the BBC that there will be “no public subsidy unless similar support is available for other low-carbon generators”. He said all low-carbon forms of energy have high up-front capital costs, not just nuclear, so “we need to give investors more certainty”.
European law and the UK coalition government agreement prohibit subsidies for new nuclear. In the interview, the BBC’s John Humphreys accused the government of trying to “slip around” the subsidy issue by offering long-term contracts for electricity companies planning to build new nuclear plants.
Mr Humphreys said: “You intend to intervene in the market in a way which amounts to subsidising the big power generating companies.”
Mr Davey said what the government is trying to do is make sure low-carbon sources compete on a level playing field. “What we want is a market structure that makes sure we keep the lights on. There will be no blank cheque. Nuclear needs to be price competitive or new build will not proceed.”
Mr Davey gave the interview to discuss the release later today of the government’s draft energy bill. One of the key proposals in the bill will be the introduction of a “contract for difference” (CFD), a long-term contract with a fixed price for power that is used to provide certainty for new energy projects such as nuclear plants that need high capital investment and a long lead-time.
The CFD uses a strike price and when the market electricity price falls below the strike price the counterparty pays the electricity generator the difference. Conversely, when the market electricity price being earned by the generator is above the strike price, the generator pays the counterparty the difference.
Tim Yeo, chairman of the UK House of Commons Energy and Climate Change Select Committee, said today that the bill needs to address “very precisely” certain questions about incentives, not just for nuclear.
He said: “CFDs are at the heart of the bill. We need to know who the counterparty is and what the credit status of that counterparty is. If the counterparty was to be the government it would eliminate any credit risk from the contract and would help to reduce credit risk and costs for the electricity companies.”
In order to regenerate its electricity industry the UK needs “massive new investment” in the next five years, Mr Yeo said. This investment is not just in nuclear, but in gas and a range of low-carbon renewable technologies.
He said: “Those decisions are urgent and need to be taken against a framework of predictable, stable policies.”
On the issue of subsidies Mr Yeo said “there’s nothing wrong with a subsidy to get greener, secure energy”.
He said the legality of subsidies is a separate issue which “we haven’t yet clarified”.
Last week executives from RWE and E.ON told Mr Yeo’s committee that a CFD policy needs to be in place in the UK if potential investors are to consider building new nuclear power plants.
