Families face nuclear tax on power bills

Monday, October 19, 2009

Government officials have drawn up secret plans to tax electricity consumers to subsidise the construction of the UK's first new nuclear reactors for more than 20 years, the Guardian has learned.

The planned levy on household bills would add £44 to an annual electricity bill of £500 and contradicts repeated promises by ministers that the nuclear industry would no longer benefit from public subsidies. There is mounting pressure on the power industry to show it can keep the lights on, with fears growing of an energy gap as ageing nuclear stations are retired and plans for new coal plants attract hostile protests.

Ministers have become concerned that power companies such as E.ON and EDF Energy are reluctant to commit themselves to building nuclear stations because energy prices have fallen and they fear they will not be able to recoup the multi-billion pound cost of building new nuclear stations.

The government believes that only by artificially increasing the cost of electricity generated by coal and gas stations through an additional carbon levy on household bills can nuclear become more competitive and encourage new reactors to be built.

One European utility executive told the Guardian: "New nuclear will not happen without sorting out the carbon price." The Guardian understands that the Office of Nuclear Development (OND), set up by Lord Mandelson's business department, has promised nuclear companies that the price of carbon under the EU emissions trading scheme – now about €13 per tonne – will not be allowed to fall below €30 per tonne, and ideally €40. According to the energy consultancy firm EIC, the new carbon levy would add £44 to the £500 annual electricity bill paid by an average household.

The matter has come to a head as governments around the world prepare for December's global climate change summit in Copenhagen. For weeks officials from the OND have been privately assuring companies that if Copenhagen fails to secure a deal which significantly boosts the market price of carbon, the government will act to do so early next year.

Politicians and environmental campaigners are increasingly pessimistic about the prospects of the summit reaching any significant agreement, making intervention by ministers to support the nuclear industry likely.

Nuclear developers, such as the French-owned group EDF Energy, will need to decide whether to commit funds to start building reactors in less than a year, which is why ministers are keen to act soon. The carbon tax would take effect from 2015, to encourage developers like EDF planning to have reactors operational from 2017.

A senior government source said: "We know what companies' investment criteria is. If Copenhagen does not reach agreement on it we will do it next year, either via a subsidy, levy or tax. We will look at it – the utilities know it." He added: "The way we look at it is: the answer is €30 a tonne, what is the question?"

The executive director of Greenpeace UK, John Sauven, said: "Nuclear power has always been a byword for monumental taxpayer handouts. Now the likes of EDF Energy are getting cold feet over the cost of new nuclear stations, it looks like the government is trying to sweeten the deal with public money. This is despite saying categorically that any new reactors will have to survive without subsidy. Without huge financial support, nuclear power doesn't make economic sense. Even the big utilities now admit this."

The government wants energy companies to build at least eight new reactors – costing more than €20bn – to replace those being decommissioned and to provide a secure, low carbon supply of electricity. After giving public backing to new nuclear early last year, ministers have been overhauling the regulatory and planning regime to make it happen.

The government's independent committee on climate change last week floated the idea of intervention in the carbon market, but claimed that this option had not been assessed in the UK before. The revelation that the government is far ahead of the committee on climate change's thinking shows how committed ministers are to ensuring nuclear reactors get built, even if it means consumers have to subsidise them. The government will make its formal response to the committee's annual report in January, when it is expected to publicly endorse the carbon tax. Ministers will argue that the tax will also benefit low carbon generators of electricity such as clean coal and renewables. But nuclear would be the biggest winner. Subsidies have recently been boosted for offshore windfarms, while clean coal is at least 15 years from being viable.

A government spokesman said there were no "current plans" to put a floor on the carbon price or introduce a carbon tax, but did not rule it out in the future. Politicians are loath to admit that they are planning to introduce a subsidy for the nuclear industry. Anti-nuclear groups have accused governments of being too close to the industry, which they say already benefits from indirect subsidies. The government has promised to guarantee the cost of disposing of nuclear waste and also pay for the cleanup resulting from any nuclear accident.

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