Chris Huhne's subsidy sleight of hand


Following on from yesterday's little piece about how Chris Huhne is playing smoke and mirrors games when he says that there should be no subsidy for nuclear generation plants, there's a further consideration.

Feed in tariffs.

Over and above the Renewables Obligation, which is in itself already vastly more expensive than any possible cost of subsidising nuclear power stations, we've just adopted the German/Spanish system of feed in tariffs. If you're generating electricity from a variety of renewables technologies, you get a guaranteed price for you power. The list of technologies and prices is here.

Note again that this isn't money that is being paid out by Mr. Huhne, or his department, or being funded from tax revenue. No, this appears on our electricity bills and so is largely hidden from us. We've still got to pay it, we still bear the economic cost, but no politician has to stand up and state that they're raising taxes in order to pass on this subsidy to someone. It is, in short, a stealth tax.

Look at the numbers there: solar PV gets a guaranteed 30 to 40 pence per unit of electricity generated. Small windmill installations get 25 to 30 p. Small hydro gets 20 p. But how have they reached these numbers? Given that the unti of electricity has the same value to us as consumers, what on earth possessed people to offer different subsidies? All we care about is that non-carbon emitting electricity is flowing through the wires, surely?

Well, they've decided to guarantee an 8% return on capital to those who install such systems. So if solar PV is more expensive, requires more capital, then the guaranteed price must be higher in order to encourage the installation. Which is nonsense, of course. We want a system of subsidy which operates entirely the other way around (assuming we want any subsidy at all of course). We want people to be installing the lowest cost technologies, not people being encouraged to install the highest cost ones. That is, we'd like a flat level of subsidy and thus people will be encouraged to install low cost, not high cost, systems.

But what makes this entire system entirely insane is that, while nuclear has similar carbon emissions to hydro and wind (and some one third of solar PV), nuclear is not eligible for either this system of feed in tarrifs nor the still extant Renewables Obligation. If we guaranteed the nuclear utilities 40 p per unit  they'd have plants up by Wednesday next week: their return on capital wouldn't be 8%, it would be the biggest bonanza in the history of electricity generation. Even if we only guaranteed an 8% return on capital employed (inflation protected, as are the other feed in tariffs) they'd still build as many of the concrete boxes as we could desire.

Now, whether we need a subsidy to nuclear or not is not my point: nor is whether we need a subsidy to renewables, not even whether climate change is real or not. No, my point is that we've got a great deal of sleight of hand, smoke and mirrors going on here.

We're told that there will be no subsidy to nuclear while all of the competing technologies, the renewables, have cash pouring from their ears as a result of the subsidies being stuffed into their gaping maws. The politicians are simply not being honest with us over this matter.

Worse than just the subsidies though is this: we actually tax nuclear as if it is a fossil fuel. Yes, the Climate Change Levy is not paid by users of renewably generated power but is paid by consumers of nuclear.

The basics of economic efficiency (to say nothing of political honesty) tell us that if we wish to subsidise non-carbon forms of energy generation then we should set a single level of subsidy and then watch as the best technology wins. Not pick and choose favourite technologies because some thing nuclear is a bit icky. And most certainly not allow politicians to play games by insisting that there's no money for subsidies while they've changed the law to ransack our pockets, through our electricity bills, for hidden subsidies to their favoured technologies.