"Coalition should be up-front about nuclear subsidy" says Committee
The Coalition Agreement pledged to allow new nuclear power stations to be built 'provided that they receive no public subsidy'. But MPs believe that Government proposals will effectively provide subsidies to nuclear generators through new long term contracts and a carbon price floor that could hand them windfall profits.
Tim Yeo MP, Chair of the Energy and Climate Change Committee, said:
"Ministers believe that new nuclear could play a key role in keep the lights on and meeting our climate change targets—but they don’t want to own up to supporting it.
This is understandable given the promise they made not to subsidise nuclear, but it would be deeply irresponsible to skew the whole process of electricity market reform simply to save face.
The Government must be up front about the support it is giving to nuclear and not hide subsidies in a one-size-fits-all design for long-term energy contracts."
BackgroundOver one hundred billion pounds of investment is needed by 2020 to replace the UK's aging power stations, cut carbon emissions and maintain energy security. Government proposals for Electricity Market Reform (EMR) are supposed to encourage power companies to deliver clean affordable energy, even when there are more inflexible and intermittent sources of electricity in the mix.
The committee's findingsThe committee is concerned that the current EMR proposals are over-complex and could fail to attract the £110 billion investment needed in the electricity generation alone by 2020. It is calling on the Government to simplify its package of reforms to provide a more certain framework for investors. The starting point for EMR should be a clearly defined objective to reduce the carbon intensity of electricity generation in the UK to 50g of CO2 per kilowatt hour (KWh) by 2030.
- The wholesale market should be fundamentally reformed to break up the dominance of the Big Six energy companies, in order to allow new entrants to invest in the UK and improve the liquidity of the market.
- The long term contracts designed to encourage low carbon energy sources—known as Feed-in-Tariffs with Contracts for Difference—will work for nuclear, but different types of contract are needed for renewables and other clean technologies.
- It is too early for the Government to design a capacity mechanism given the rapid development of smart meters, interconnectors and storage systems that could remove the need for "peaking plant".
- The Carbon Price Support is a necessary short term solution to weaknesses in the EU Emission Trading System, but will increase costs for consumers and could provide a windfall for nuclear and renewables generators.
"The Government must go back to the drawing board and come up with a more straightforward and coherent set of plans to reform the electricity market.
Radical reform of the wholesale energy market is needed to stop the Big Six from stitching it up, but at the moment Ministers are only tinkering at the margins."The MPs also call on the Government to be up front about the effect that reforms will have on energy bills. Tim Yeo MP added:
"Cleaning up our power sector will cost money, but the long term benefits for the UK of having a secure, reliable and low-carbon electricity system are clear.
In the short to medium term bills will rise, but in the long term people will see savings—Ministers should be open about that."
Terms of Reference
9 Investment: risks and returns
Conclusions and recommendations
List of printed written evidence
List of additional written evidence
List of Reports from the Committee during the current Parliament
Oral and written evidence
18 January 2011
25 January 2011
2 February 2011
8 February 2011
15 February 2011
15 March 2011 (morning)15 March 2011 (afternoon)
Additional written evidence (unprinted)
|Energy and Climate Change - Additional (Unprinted) Written Evidence [Back to Report]|
Electricity Market Reform
Here you can browse the Written Evidence ordered by the House of Commons to be printed 25 January 2011.
Nuclear Power Stations: Environment Protection9 May 2011 : Column 1024W
Martin Horwood: To ask the Chancellor of the Exchequer what estimate has been made of the additional revenue that will accrue to existing nuclear power station operators as a result of the carbon price support proposals announced in the 2011 Budget. 
Justine Greening: The carbon price floor announced in the Budget is intended to create economic incentives toward low-carbon electricity generation and away from high-carbon generation. All types of low-carbon technologies will be incentivised by the price floor. The impact on utility companies' profitability will depend on the overall composition of their generation portfolios and future investment decisions.
The existing nuclear sector is likely to benefit by an average of £50 million per annum to 2030 due to higher wholesale electricity prices. Similarly, the renewable energy sector is expected to benefit by an average of at least £25 million a year to 2030.