Environment Audit CommitteeWritten evidence submitted by the Nuclear Industry Association
1. The Nuclear Industry Association (NIA) welcomes this opportunity to respond to the Environmental Audit Committee’s inquiry.
2. NIA is the trade association and information and representative body for the civil nuclear industry in the UK. It represents around 270 companies operating in all aspects of the nuclear fuel cycle, including the current and prospective operators of the nuclear power stations, the international designers and vendors of nuclear power stations, and those engaged in decommissioning, waste management and nuclear liabilities management. Members also include nuclear equipment suppliers, engineering and construction firms, nuclear research organisations, and legal, financial and consultancy companies.
3. As the trade association for the nuclear industry the NIA does not have the expertise to provide detailed responses to the five specific questions posed by the Committee, which are essentially a matter for Government. We would however like to make some higher level points relating to the financing of new nuclear plants.
4. As the Oxford Energy Associates (OEA) report to the Committee emphasises the energy subsidies issue is complex. There are diverse views on how they should be defined, and both wider and narrower parameters have been used. In the UK the Government’s approach has been to use a narrower definition for subsidies to the electricity industry, which has had the benefit of providing a clear picture of specific support measures including their impact on the energy economy.
5. Against this background, and our reading of the OEA report, we believe the Government’s Electricity Market Reform proposals are not a key issue for the Committee. We would regard their provisions—including the CfD arrangements and the carbon floor price—not as subsidies but as enablers to facilitate the UK’s wider energy policy.
6. The UK’s current nuclear power stations have been making a major contribution to the UK’s energy supplies over many years, operating in a competitive market and without subsidy. However, with much of our nuclear and coal fired capacity closing over the next few years, the UK needs credible plans to replace that capacity and to decarbonise the power sector if it is to meet its energy security and climate change targets. The EMR proposals are designed to provide investors with the certainty they need to proceed with the low carbon plant—both nuclear, renewables and potentially CCS—needed to achieve this.
7. Whilst nuclear and low carbon generation generally have lower operating costs than fossil generation, their higher up front capital costs mean they are difficult to finance in the current market. The EMR proposals are therefore addressing a market failure. Without such action the UK would be locked into a high carbon energy scenario.
8. In this context the Oxford Energy Associates report comments that subsidies have become synonymous with bad economic practice, and are generally assumed to reduce economic efficiency. The EMR proposals will not have this effect. In the case of nuclear the introduction of new plant will provide long term price stability for consumers, protecting them from high or volatile fossil fuel prices. The Government view is that electricity bills after the implementation of EMR are expected on average to be lower than they would have been in the period up to 2030. Moreover the Climate Change Committee recently concluded that delaying investment in low carbon technologies to the 2030s would be likely to drive up costs—by up to £100 billion in some scenarios.
9. To sum up, the EMR proposals are carefully designed to create a level playing field for all low carbon generation technologies at minimum cost to consumers. The NIA believes this will not only help the UK meet its energy security and carbon reduction objectives, but will also protect the consumer from long term price increases.
10. Finally, in relation to the UK’s historic liabilities, we would note that the Nuclear Decommissioning Authority was set up in 2005 to decommission and clean-up these sites. Whilst the cost of this work is being funded from the NDA’s commercial operations and the UK Government, we would suggest this should properly be regarded not as a subsidy but the cost of dealing with a public sector liability from the historic nuclear research and development and public sector operation of the Magnox power station fleet.
13 June 2013