What Price Nuclear?
Britain's so-called "reform" of the energy market is the Conservative Party's thinly veiled attempt to fit nuclear power into a "liberalized" market.
The proposed EMR will use "contracts for difference" (CfD) to pay for nuclear and other "low-carbon" technologies such as Carbon Capture and Storage (CCS) as well as renewable projects greater than 5 MW.
Renewable projects less than 5 MW qualify for an existing feed-in tariff program.
CCS projects in Britain will be similar to the Indiana Gasification project and the Hydrogen Energy project in California.
Under CfD, generators will be paid a "strike price" or tariff. If the strike price is higher than the wholesale price, the government is obligated to make up the difference to the purchasing utilities. The government can do this through a tax levy or by passing the cost along to consumers in their utility bills.
But determining an accurate strike price is bedeviling the government. British newspapers have been reporting various rumors and estimates for months. Some of the leaks are no doubt to test the water of public reaction before the legislation is introduced in early November.
If the government doesn't reach a strike price that is high enough to warrant the exceptional risks associated with a nuclear project, no one will finance the new plants. If they do get the price right, then the government runs the risk of revealing what new nuclear actually costs, inflaming the already heated energy debate and possibly derailing their plans for new nuclear.
On the other hand, if the government set's the rates too low it will have to make up the difference somehow, for example, by obscuring some costs through government action. If it does so, then the government may run afoul of European Union restrictions on state aid, that is, subsidies.
That's not all. The coalition agreement between the Conservative Party and the Liberal Democrats includes a provision that there will be no "subsidies" for nuclear. Any overt aid could cause a crisis of confidence in the government leading to political instability.
Certainly the prices bandied about in the press are not anywhere near the "cheap" electricity advertised by the nuclear industry. They range from £0.105 GBP/kWh ($0.16 USD/kWh) to£0.166 GBP/kWh (0.25 USD/kWh).
It's unlikely that the government's proposal will reflect these prices. If they do, the government will have to admit that renewables, even offshore wind, are cheaper than nuclear, making it difficult to get approval to build the new plants.
Consequently, the press is now reporting suggestions that the government may "underwrite" the risks of nuclear, probably in the form of low-interest loans. This may not be enough.
Regulated feed-in tariffs differ markedly from previous "rate of return regulation" used to build nearly all nuclear power plants in the world. Under rate of return regulation, once construction is approved, utilities are assured of receiving a "fair rate of return" on their invested capital, assuming they make no major blunders. Even where there were huge cost overruns, the utilities were nearly always permitted to earn their regulated rate of return regardless of how much they spent.
However, with a feed-in tariff all construction and operation risk are borne by the project developer. There is no "guaranteed rate of return". If the project costs more than expected, the developer bears all the cost and their profit is reduced accordingly.
It is this distinction between guaranteeing a rate of return on invested capital, and the risk of financial failure from a fixed tariff that has caused the British government and the nuclear industry such consternation.
How the British handle this conundrum will lead to much gnashing of teeth on both sides of the nuclear issue.
Of course, there will remain some well entrenched subsidies for nuclear no matter what happens. Most famous is publicly-funded insurance for nuclear accidents.
And the sums are not insignificant. The cost for insurance against accidents, if the insurance was acquired from the private sector, would cost as much as the electricity itself.
Deutche Welle reports that Green Budget Germany estimates this risk insurance raises the cost of nuclear energy to between €0.11 and €0.34 euros per kWh ($0.10-$0.30 USD/kWh). This raises total cost to an astounding €0.30 to €0.50/kWh ($0.40-$0.80 USD/kWh).
In the next few weeks British politicians may well determine the fate of nuclear not only in Europe but in North America as well.
Whatever happens in Britain or Indiana in the next few months, the taboo against feed-in tariffs by conservative politicians on both sides of the Atlantic will have been broken.
Lead image: Nuclear plant via Shutterstock
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