Big Sticks and Small Carrots

Nuclear power is one of those debates which brings out the vested interest groups in droves. This makes it particularly difficult to establish even the most basic facts surrounding the issue.

Take this article on CiF by former Labour MP and energy minister Brian Wilson which adopts a classic Blairite “the debate has moved on” approach to the issue. Wilson starts by constructing a straw man and, what a surprise, defeats it hands down. Well done.

What Wilson does not do is declare his own interest in the nuclear industry. He stepped down as an MP in May 2005; in October 2005, he was appointed non-executive director of AMEC Nuclear, “the UK largest private sector supplier of engineering solutions and safety consultancy services to the nuclear sector”. (Via edwardrice in the comments at CiF.)

That, of itself, doesn’t mean his opinions can be disregarded. The fact that he chose not to disclose this information in his article, however, doesn’t exactly inspire confidence in his integrity. I’m surprised that the Guardian allowed it; they’re normally reasonably good at that sort of thing.

Anyway, today the government has announced that nuclear power is, er, well, what have they announced exactly? They say that they are going to support new nuclear power plants but there are to be no public subsidies. The problem with that is that investment in nuclear power plants doesn’t appear to be economically viable at the moment. If it was, power companies would already be attempting to build them.

But they are not. They’re waiting for the government to do something. The something which gets mentioned most often is that they intend to streamline the planning process. That might make it easier to build the things but it doesn’t really seem too convincing as a way to make investment in new nuclear power an economically viable proposition. So what else?

The answer, I believe, lies in this rather more informative Guardian article which is worth reading in full. Here’s what the government could do to “encourage” new nuclear investment without providing public subsidies in the normally understood sense of the term:

The power firms insist there is no need for any subsidies because they are prepared to pay in full the cost of decommissioning reactors and the expected burial of waste…

EDF and Eon reject claims that this means they want the UK guarantees a minimum price for power, although privately both firms are pushing as hard as they can for a mechanism to come close to this.

That’d do it, certainly. That, and guarenteed minimum demand from the new plants (without that, nuclear power could be superseded by cheaper options at any future time and demand for nuclear would then fall away). Without those government interventions, the enormous up-front investment in new nuclear power stations would be very risky. If energy prices were to fall, if new cheaper technologies were discovered or large new gas reserves found, nuclear investors could be seriously out of pocket without these “encouragements”. With these “frameworks” in place to remove much of the risk, I’m sure private companies will be much more enthusiastic about new nuclear.

Strip away the smoke and mirrors and that’s what we’re talking about; significant state intervention in the market. It may not be in the form of direct public subsidies but it’ll still be the general public who effectively provide the financial guarantees so that investors can make their money while facing a minimum of risk.

And, of course, artificially high power prices would affect those least able to afford it the most. It would be, in effect, yet another regressive tax on those with low incomes.

Hutton today has gone out of his way to say that there will be no public subsidies provided as part of the “ecouragement” process. Let’s see if he also rules out government regulation on pricing and demand.

By the way, SNP say they will not allow any new plants to be built in Scotland in any event. That’d create a whole different set of problems, of course. Will Scotland take power from the national grid which has been generated by nuclear plants in England? Would that generate perfectly understandable resentment south of the border? Will the SNP be loving every minute of that resentment… But that’s another story.