Chris Huhne's "no state subsidies for nuclear"


There's something really rather strange about Chris Huhne's announcement that there will be no state subsidies for nuclear energy generation:

Mr Huhne, one of the leading Liberal Democrats in the cabinet, used an interview with The Sunday Telegraph to speak out in favour of harnessing both onshore and offshore wind power in comments likely to alarm Conservatives and place further strain on the coalition.

The Energy Secretary, ahead of a key Commons statement on energy policy on Tuesday, also stressed there was "no money" for state subsidies for a new generation of nuclear power plants – the favoured option of both the Conservatives and Labour.

The strangeness is that every other form of non-fossil fuel generation is getting massive subsidies, so why this prissiness over some to nuclear? The answer lies in how the other subsidies are calculated and paid, not in any principled objections or even any acknowledgment of economic rationality.

Let us start from where we can usefully assume Huhne is now. Climate change is happening and something must be done. That something is that the use of fossil fuels must be discouraged and of non-fossil fuel methods of energy generation encouraged. There is no such thing as a "no carbon" energy system but there are a number of low carbon ones. Wind, hydro and nuclear have roughly equivalent emissions, solar perhaps two to three times these technologies but all are much lower than any fossil fuel based ones.

So, what is it that should be done? Huhne has, as above, stated that there will be no state subsidies to nuclear: but that is what is so odd. There are huge subsidies to both wind and solar.

However, the difference comes from who has to write the cheques for these subsidies. With nuclear it would be Mr. Huhne having to convince his Cabinet colleagues to take some from the tax pot and offer it to the nuclear industry. With wind and solar, it is us the consumers of electricity who have to pay directly, as a result of the Renewables Obligation raising the cost of the electricity we consume. A hidden subsidy, one which a politician can say about "Ooooh, no Guv', not me!" is obviously more attractive than having to raise taxes to fund a subsidy.

It is also convenient for a politician emotionally opposed to nuclear power to be able to dole out the hidden subsidy to renewables while using the directly seen cost of a nuclear subsidy as a reason to balk at such.

So much for the politics, what about the economics?

Well, there's not much difference between having to pay more tax to pay for getting nuclear going and having to pay more for electricity to get renewables going. Given that we all pay tax and we all use electricity, the incidence of either subsidy is most certainly upon all of us. What we really want to know is what is the total subsidy necessary to produce the power that we want? It's at this point that nuclear looks like being much the cheaper option.

By 2020, the government hopes to have 25 GW capacity in offshore wind farms – attracting 1.5 times the standard ROC, on top of 14 GW of onshore capacity. With ROCs paid out at a rate of £53 per MWh, the total annual sum for British electricity consumers will amount to a staggering £6 billion – a total of £155 billion paid to wind subsidy farmers over the expected life-times of the projects (equivalant to the cost of building over 50 nuclear power plants).

Assuming those numbers are right even by an order of magnitude it appears that Huhne is making the wrong decision. But the only reason he can get away with that decision is because any nuclear subsidy would be handed over as a cheque from the taxpayers, and thus be visible, while the subsidy to renewables is hidden in our electricity bills.

So, we'll end up spending massively more than we have to to get a non-carbon electricity generation system and all because the Minister can play smoke and mirrors with the size of the subsidy.