How much longer is the government going to suppress the cost to households of achieving net zero carbon emissions, or try to imply, as business secretary Kwasi Kwarteng recently seemed to imply on the Today programme, that it won’t cost us at all?
Even as he spoke Kwarteng was working on a new model for the funding of nuclear power stations that was unveiled yesterday in the form of the Nuclear Energy Finance Bill. The proposed legislation will impose levies on energy bills in order to subsidise the construction of new nuclear power stations. The new model of funding — called Regulated Asset Base — will replace the model by which Hinkley C is being constructed: the contracts for difference, or CfD, model which was used to entice EDF to undertake the project. The carrot is a guaranteed ‘strike’ price for electricity generated by the plant as soon as it starts generating electricity.
Funding plants upfront may have the agreeable effect of cutting out Chinese finance. Moreover, the CfD model was failing to attract investors for other projects, such as the proposed new nuclear reactor at Wylfa, which Hitachi abandoned a year ago. But it will inevitably transfer risk to the consumer — should, say, the proposed new plant at Sizewell in Suffolk end up being abandoned before it begins generating power, taxpayers will already have paid towards the plant through their bills. Transferring that risk to the private sector was the whole reason for introducing the Hinkley form of funding in the first place.
With his characteristic optimism, Kwarteng claims that the new funding model will ‘save’ energy consumers £30 billion on each nuclear project. Can that really be true? It rather depends on your definition of saving money.
Kwarteng’s claim is based on the presumption that the only alternative to new nuclear power stations funded by the new model is for nuclear power stations to be funded like Hinkley by the CfD model. But Hinkley was itself horrendously expensive: EDF has been guaranteed a minimum price of £92.50 per MWh (at 2012 prices) over 35 years, the expected lifetime of the power station — around twice as high as wholesale electricity prices at the time the deal was signed.
We don’t yet know how big the sting will be to energy consumers to finance Sizewell C through the new funding model — the Department for Business insists it will be ‘a few pounds a year’ per household during the early construction phases, followed by ‘less than £1 a month’ during the full construction phase. But it is somewhat dubious to replace a very expensive form of subsidy with one that promises to be merely expensive — and then claim that you have ‘saved’ money.
There are, of course, other alternatives that may or may not turn out to be cheaper: gas (with or without carbon capture), renewables (assuming some form of affordable energy storage can be found) or letting the market itself decide how our electricity should be generated. If nuclear really is the future you might expect investors to be more interested in it without subsidies. And of course, you don’t get something for nowt: if consumers do end up paying less for Sizewell than they will for Hinkley it will be because they have taken on more risk.
The upshot of it all, however, is that consumers — 25 per cent of whose electricity bills are already made up of green and social levies — will be facing even higher levies in the short term to help the government try to meet its target for decarbonising electricity by 2035. All this at a time when bills are already rising sharply.