House of Lords - No Country is an Energy Island: Securing Investment for the EU's Future

No Country is an Energy Island: Securing Investment for the EU's Future - European Union Committee Contents

CHAPTER 3: the energy mix

EU competence

51. Throughout our inquiry, witnesses recognised the provision in the Lisbon Treaty (see Box 1) that the energy mix—that is, the choice of energy sources—remains a national competence and for Member States to decide.[92] It was noted, however, that there is EU legislation relating to renewable energy, market liberalisation and emissions reductions which do, as highlighted by Mr Froggatt, "affect the choice of Member States".[93] For example, the Renewable Energy Directive[94] sets a minimum level of energy to be derived from renewable sources.

52. The European Commission emphasised that the purpose of European policy is not to divide competence, but to "add value to what is a national energy policy" and see what "can be done in common". This common interest in relation to energy, the Commission explained, is the mutual challenge of "providing safe and secure energy at affordable prices".[95] It is no longer possible, the Commission observed, to talk about a national electricity generation policy, without taking into account what is happening elsewhere and in neighbouring countries.[96] This extended to considerations of whether support by Member States to certain sectors constituted unacceptable state aid.[97]

53. It was generally accepted that the decisions taken by one Member State—such as pursuing renewable energy—can have significant implications for neighbouring countries. Some witnesses focused on Germany and its decision to phase out nuclear energy in favour of renewable energy and more coal-fired power, and the impact this can have on its neighbours in terms of unplanned surges of electricity through neighbouring countries at times of high wind energy production.[98] As a potential step forward, the Office of Gas and Electricity Markets (Ofgem) supported the proposition that some form of mechanism be introduced that would require governments to hold discussions with neighbouring countries before going ahead with national policies.[99] Ms Niki Tzavela MEP advocated a stronger "pan-European governance"[100] on energy so that, at the very least, Member States are held accountable for the policy decisions they make.[101]

54. There is an inherent tension between EU-level environmental and competition goals, its renewable energy and internal energy market policies, on the one hand, and maintenance by Member States of responsibility for the energy mix on the other hand. If Member States do not all adopt secure and responsible generation policies, there is a danger that the EU may fail to meet the objectives not only of its energy policy, but also of its environmental policy. We recommend that consideration should be given to annual obligatory reporting by Member States to the Commission on their national energy policies, with assessments conducted by the Commission on the implications of emerging policies for neighbouring countries and the EU as a whole. This must extend to assessment of the compatibility of national policies with EU rules on state aid, on which we recommend the Commission provides further clarity.

Carbon capture and storage

55. Carbon capture and storage (CCS) (see Box 3) is seen by many as an important technology in the decarbonisation process. As noted in the UK Government's Gas Generation Strategy, CCS has the potential to decarbonise power and industrial sectors in "economies worldwide".[102] According to the IEA, fossil fuels (including oil) met 81% of total global energy demand in 2009. The IEA emphasised that the only way to burn fossil fuels without adding more CO₂to the atmosphere is through the use of CCS.[103]

BOX 3

Carbon capture and storage

CCS involves capturing carbon dioxide from fossil fuel power stations (or large industrial sources), transporting it mainly via pipelines and then storing it safely onshore or offshore in deep underground structures such as depleted oil and gas reservoirs or deep saline aquifers. It is estimated that the total reduction in emissions per unit of electricity from the use of CCS is around 70%.[104]

56. Although generally agreed that CCS applied to fossil fuel combustion is likely to be of critical worldwide importance, there has been a regrettable lack of progress, as was emphasised by the Commission in its recent Communication on the future of CCS in the EU.[105] The IPPR said that, whilst CCS is technically workable and environmentally acceptable, it has proved challenging to make it commercially viable.[106] WWF stressed that CCS is still only at the pre-demonstration stage, with repeated delays resulting in uncertainty.[107] The Secretary of State noted the importance of calculating how everyone involved in the supply chain could get a return on their investment.[108] The UK Government announced in their March 2013 Budget that two CCS projects[109] had been selected to go forward to a detailed design phase (known as Front End Engineering Design[110]) of the CCS competition, which the Secretary of State claimed was a significant step closer to a viable CCS industry. The intention of the UK competition is to make available £1 billion of funding to the preferred bidder.[111]

57. Divergence of views among Member States is another reason for lack of investment. German projects to apply CCS have been restricted due to public concerns about onshore CO₂ storage. The Commission's own NER-300[112] facility to support CCS demonstration projects has declined massively in value as the EU Emissions Trading System (ETS) price has collapsed, and this has been compounded by the unwillingness of Member States to support the bids. As a result, no CCS projects were supported within the original competition and a portion of the finance was held back to reopen the competition in mid 2013. A number of witnesses considered that insufficient progress on CCS was being made, and much of this criticism was directed at Member States.[113] The Commission noted its additional concern about the exclusive focus on coal, with no gas in the possible demonstration projects considered thus far for NER-300 support.

58. As for how CCS might be encouraged, suggestions included: an EU-level Emissions Performance Standard (EPS), which would prevent the operations of coal-fired power stations unless they were equipped with sufficient CCS to meet the required standard; the mandatory application of CCS at some point in the future; and improved collaboration between Member States, perhaps through a credit system allowing Member States or industry to invest where there was the least public resistance. Mr Chris Davies MEP, who articulated the latter suggestion, observed that an EPS at the levels currently being proposed in the UK would simply be a mechanism to favour gas over coal and would not necessarily encourage the use of CCS.[114] The Commission agreed in its recent Communication on CCS in the EU.[115] Mr Tindale, though, argued that an EU-wide EPS set at a sufficiently low level would rule out "cheap, highly polluting forms of energy", as it would cap their emissions intensity (greenhouse gas per unit of output).[116] From the UK perspective, National Grid highlighted how CCS has a crucial role to play in meeting carbon targets affordably.[117] The European Climate Foundation (ECF) suggested that the focus should be on the application of CCS to gas and industry, particularly given the likely reduction in coal capacity. It was noted that such a concentration might be easier if there was a focus on industrial clusters so that the by-products of CCS can be used.[118]

59. The Secretary of State noted that the development of CCS in the EU could allow it—and the UK in particular, given its huge offshore storage potential—to take a lead in developing the technology.[119] This position was supported by National Grid who noted that the combination of EU programmes, along with UK support through the DECC commercialisation programme has "ensured that the UK and Europe are at the forefront of this technological development" and are thus well-placed to take advantage of the resulting opportunities.[120]

60. In terms of worldwide electricity generation, CCS could make a larger contribution than anything else to reducing greenhouse gas emissions. The EU has a common interest in the development of CCS because of its common decarbonisation target and availability of significant carbon storage capacity.

61. We consider that, in relation to both coal and gas, CCS is technically feasible, but faces both financial and political obstacles. We urge the UK Government to deliver and build on its commitments to support pilot projects and stress the importance of an EU CCS portfolio including at least one CCS project applied to gas.

62. Where possible, CCS should be developed in industrial clusters so that it can be applied to industry as well as the power sector, thereby allowing its by-products to be used for industrial purposes.

63. It is particularly disturbing that as the need for CCS has increased, the effort to deliver it appears to have diminished. The slow progress of CCS thus far and its importance to EU energy policy suggest that a stronger incentive needs to be developed at EU and Member State level. This requires a stable source of national and EU funding and a credible carbon price or regulatory approach. Such an approach should include a provisional target date for requiring CCS to be applied to any new fossil fuel power stations, based on the results of pilot projects.

Gas

64. There was a strong view among witnesses that gas is important as a transitional fuel[121] for two reasons: to complement the intermittency[122] of renewable sources; and to provide capacity of lower carbon content than coal while renewables are being developed. The IEA has also recommended gas as a substitute for coal.

65. Highlighting the importance of gas as a transitional fuel, Professor Dieter Helm noted that gas provides "one short-term option to do less damage than coal" (see Box 4), but is "not a permanent solution", and might therefore require strong regulation to ensure that industry moves away from gas.[123] The European Economic and Social Committee (EESC) also suggested that gas should be considered as a temporary substitute for the most polluting sources of energy, but noted it should play a limited role as a transition fuel.[124] Professor Helm highlighted the concern that prolonged use of gas could result in a 'lock-in' to carbon-based plant and infrastructure. He suggested that regulations in the form of "emissions performance standards", for example, could be employed to prevent this from occurring.[125]

BOX 4

Comparative greenhouse gas emissions of fossil fuels

Greenhouse gas emissions: gas vs. coal[126]

Gas 300-350 gCO₂/KWh[127]

Coal 600-800 gCO₂/KWh

Lignite 800-1,000 gCO₂/KWh

These figures clearly demonstrate how coal and lignite are both far more carbon emitting than gas (with lignite being worse than coal). It is because of the high carbon emitting nature of coal and lignite that there is a high preference for the alternative use of gas. Furthermore, if CCS was applied to the use of gas, this would help reduce its greenhouse gas emissions even further.

66. Dr Gross supported these views when he stated that in the short-to medium term it is important that we have gas as a back-up, but in a similar attempt to avoid a gas 'lock-in', we would "need to make sure that the inbuilt incentive to use that plant more than our carbon targets would suggest is overcome".[128]

67. The role of gas in energy security was also emphasised by witnesses, but this will be discussed in greater detail in Chapter 6.

68. Gas has an important role as a transitional fuel, in moderating the cost of energy while larger renewable resources are further developed, and in balancing the system as the scale of intermittent inputs rises. However, further gas investment also carries a risk of 'lock-in' to carbon-based plant and infrastructure. Regulation, indicated well in advance, may be required in order to manage the transition to further decarbonisation, whether by CCS or by moving beyond gas.

UNCONVENTIONAL GAS-SHALE GAS

BOX 5

Unconventional gas

Unconventional Gas

The term unconventional refers to the source rather than the nature of the gas itself. Shale gas and coal-bed methane are examples of unconventional gas.[129]

Shale Gas

Gases are extracted directly from shale (a sedimentary rock). This has a low permeability and so does not release gas easily. To overcome this, the rock is fractured ('stimulated') to yield commercial volumes of gas. In the UK, there are several layers of shale that have potential for exploitation. The largest resources are estimated to be in the Upper Bowland Shale of the Pennine Basin (underlying Lancashire and Yorkshire), with further resources in the Wessex and Weald Basins (underlying Sussex, Hampshire and Dorset).[130]

Deposits of shale gas can be found elsewhere throughout Europe. In particular, there is a notable concentration of shale gas basins in eastern Europe.[131]

69. Shale gas (see Box 5) was described as a "global game changer"[132] and an "unexpected revolution"[133]. In considering this energy source, several witnesses were open-minded about the development of shale gas in the EU but emphasised the need for clear regulation. Mr Tindale, for example, noted that whilst the use of shale gas in the short-term is a possibility, it is "not low carbon enough without CCS", suggesting that CCS might be introduced alongside the exploitation of shale gas to reduce carbon emissions.[134] Others, however, raised concerns over the exploitation of shale gas in the EU compared to elsewhere in the world. Mr Froggatt suggested that shale gas may be difficult to develop in the EU as, first, it does not have the infrastructure and, second, "the licensing process will be different".[135] For Ms Fiona Hall MEP, it would be controversial to extract shale gas in Europe due to the continent's high population density, suggesting that the global competitive advantage for the EU lay in renewable energy.[136]

70. Some witnesses, such as Professor Helm, took a more positive approach, emphasising that the discussion of the regulatory issues relating to shale gas should be set against the alternative of coal. He argued that, while there were environmental problems associated with shale gas, it was still "phenomenally better" than coal, particularly given that coal leaks methane, leaches heavy metals, pollutes the water table, requires an intensive amount of energy and damages the health of coalminers.[137]

71. Ms Tzavela MEP called specifically on the UK to take a lead in the exploitation of shale gas. Whilst accepting that shale gas presented a challenge for the EU, she argued that it could be developed enough to allow the EU to exploit its own shale gas resources. Ms Tzavela MEP claimed, however, that shale gas would be "a success story in Europe" if it was led by the UK, which she attributed to the UK's well-established business and regulatory environments.[138]

72. We were told by the Commission that a framework proposal regarding shale gas is due late in 2013, which will consider how the exploration and exploitation of shale gas "from the point of view of the environment, climate and energy policies" can be conducted sensibly.[139] The Commission accepted that there were still a number of issues to be resolved—such as the environmental impact of shale gas extraction—but were clear that Member States should "definitely not close the door" on the possibility of future shale gas extraction if these issues can be resolved.[140] The Commission also put forward the option of importing shale gas in the form of liquid natural gas (LNG) (see Chapter 6) from the US, rather than exploiting it in the EU, and holding on to indigenous EU reserves until a future date.[141]

73. Witnesses said that obstacles to the exploration of shale gas included high population density and "the likelihood of local objections", with notable scepticism on whether these obstacles could be overcome.[142] In particular, Professor Jonathan Stern warned that people in the EU do not understand the sheer scale on which drilling would need to take place for shale gas. He cited the US, for example, which drills over 45,000 wells per year, whereas not even 100 wells have been drilled across the entire EU.[143] According to Professor Stern, and supported by evidence received from EDF, the "environmental intolerance to the scale of the drilling that needs to be done" in order to develop shale gas is likely to prevent significant exploitation of shale gas in the EU until after 2020.[144]

74. A further potential problem with the use of shale gas is that it is nowhere near as developed in the EU as it is in the US. Whilst further regulated developments might be welcome, much more research is still required. The EU is unlikely to recreate a similar US 'shale gas revolution', and should not assume it can. The amount of shale gas resource and reserves are still largely unknown and can vary by study.[145] The Parliamentary Office of Science and Technology's paper on UK shale gas potential states that "Estimates of UK shale gas are at an early stage of development", and that there is "uncertainty in resource estimates".[146] One estimate from the British Geological Survey puts UK potential at approximately 150 billion cubic metres (bcm), and another from the US Energy Information Administration suggests around 570 bcm.[147] Neighbouring regions, such as North Africa, may also have shale gas reserves that, if exploited, could be utilised by the EU.[148]

75. We agree that a regulatory structure for the exploitation of shale gas in the EU should be developed. We caution, however, that fundamental structural differences (including population density, geology, planning and legal factors) make it highly questionable that the EU could repeat the US experience. The EU is unlikely to compete on the basis of cheap fossil fuels. Creation of such a false hope would undermine the policy stability required to attract investment. We therefore conclude that there is some uncertainty about the likely extent of EU-produced shale gas. The EU must take into account the further exploitation of shale gas in neighbouring regions and the implications of this for EU energy policy.

Coal and lignite

BOX 6

Lignite

Lignite is the lowest rank of coal with the lowest energy content. Lignite coal deposits tend to be relatively young coal deposits that were not subjected to extreme heat or pressure, containing 25%-35% carbon.[149] Lignite can also contain high sulphur content.

76. There appears to be a revival in the demand for coal and lignite (see Box 6) in the EU, which Professor Helm referred to as a "dash for coal".[150] Coal represents 25% of EU electricity generation, and 40% of UK generation. The Scientific Alliance drew attention to the fact that coal is presently "the most economic fuel to burn in Europe".[151] Various witnesses cautioned against dramatisation of this phenomenon, which has been driven partly by the low carbon price under the ETS, partly by cheap coal prices in the US due to the shale gas revolution, partly (in Germany) by the move away from nuclear energy and partly by the UK carbon floor price and closures under EU environmental regulations.[152]

77. In exploring coal and lignite development in Germany, it became clear that, while many projects have been planned, very few are reaching the commercialisation stage. Dr Neuhoff pointed out that, of eight new plants that had been expected to be operational in Germany by 2013/2014, technical difficulties have delayed investment. Six were still expected to be completed but two projects had been stalled due to legal reasons, and may not be built. Of all the other planned projects, only three remain possible.[153] Mr Froggatt expressed his view that "there is a significant difference between what is under proposal or planning and what will actually be built in Germany", believing that "what will be built will be significantly less".[154]

78. For the whole of the EU, the ECF reported a similar situation, and of 112 announced projects (since the early 2000s), only two or three have reached construction stage.[155] Despite these somewhat faltering figures, witnesses nevertheless conceded the continued importance of coal: there still remains the prospect of 20 new, largely lignite, plants; coal still represents around 25% of all EU electricity generation; and subsidies are still available in Poland and Romania for new coal plants.[156]

79. The apparent surge in coal is linked to generation, not capacity—that is, there has been an increase in coal usage as opposed to capacity change. The Confederation of UK Coal Producers (CoalPro) said that the "scandalously high" price of gas (which is more than double the cost for coal) has resulted in an increase in the burning of coal.[157] In the UK, for example, coal burn was up 40% from 28 million tonnes to 39 million tonnes in the first 9 months of 2012, which was similar to the situation in Germany.[158] A low carbon price under the ETS has also been cited as a contributing factor, as is, in Germany, the phasing out of nuclear energy.

80. WWF claimed that we are not seeing "a coal renaissance",[159] and the Commission argued that there will be a "rebirth of investment in gas rather than coal as a complement to renewables".[160] Additionally, the ECF observed that this surge in coal is unlikely to be sustained given the national policies in place to disincentivise the use of coal. For example, Denmark has opted to establish a tax on coal, and Finland has made a similar pledge to phase out the use of all coal.[161]

81. Moreover, the capacity of the EU's coal fleet is likely to be hit by application of the EU Large Combustion Plant Directive (LCPD) and the Industrial Emissions Directive (IED) (see Appendix 6), which will lead to the closures of some coal plants.[162] The ECF estimated closures following the LCPD at 20 GW[163] across the EU,[164] with 8 GW of closure in the UK (including 5 GW by March 2013).[165] ECF referenced BNEF figures, which identified that, of 207 GW of coal capacity across the entire EU, 124 GW is not compliant with IED.[166] Whilst closures following the IED are unclear, only one UK plant has thus far taken the decision to invest to meet the IED requirements, suggesting that all other remaining plants may choose to shut down. This would have significant consequences given that coal currently provides nearly 40% of UK power.[167]

82. We note with concern the resurgence of coal in the EU. While significant closures are expected to take place as a result of EU environmental Directives, we observe that new plants compliant with those Directives are in preparation. We warn that, if the price of carbon under the ETS languishes for long, its credibility as a deterrent to new coal investment will be lost. The further development of coal in circumstances where CCS is not a proven technology would carry a high risk, not only in terms of climate change (and EU credibility), but also economic risk of stranded assets.

Renewable energy

BOX 7

Renewable energy

EU legislation defines renewable energy as energy from renewable non-fossil sources, namely: wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases.[168]

83. The Committee heard that renewable energies (see Box 7) represented 6% of total EU power generation in 2011, and were evolving swiftly.[169] According to WWF, in 2012, 77% of the increase in EU energy capacity additions came from renewable sources.[170] WWF also referred to a report from the European Wind Energy Association, which showed that there were 1.1 GW of offshore wind added in 2012, with figures of 1.4 GW and 1.9 GW anticipated for 2013 and 2014 respectively.[171] Taking Germany as an example, Mr Froggatt pointed out that, over the past three years, approximately 7 GW per annum of solar energy has come online, with a solar capacity now standing at around 30 GW.[172] ABB Limited identified that the renewable energy sector in the UK alone currently accounts for 110,000 jobs, with an expected growth to 400,000 by 2020.[173] These clearly indicate rapid growth rates. At the same time, the costs of renewable energy are coming down. While they are still all more expensive than fossil fuels, renewable sources such as onshore wind, for example, were highlighted by Mr Tindale as only a little more expensive than gas.[174] As is evident from the table of levelised costs in Appendix 7, this does assume, however, the existence of a robust carbon price.

84. All the scenarios in the Commission's Energy 2050 Roadmap find that renewable energy must play a part in the future of EU energy. In particular, Mr Tindale emphasised that renewable energies have an important role to play in energy security by reducing reliance on imported fossil fuels with their volatile prices and potential political dependency.[175] There are, however, concerns relating to public acceptance, which render some renewable energies, such as onshore wind, challenging to exploit.[176]

85. Renewable energy support schemes are already in place across the EU. There has been a recognition, echoed by the Secretary of State, that subsidies under those schemes were initially set at unsustainably high levels.[177] The Commission indicated that support schemes are national and of varying quality in terms of their effectiveness. The Commission suggested that there was an emerging view that feed-in premia (a fixed premium (£/MWh) paid to the generator for each unit of electricity in addition to the market price) have been more successful than other support systems.[178] We heard that support should be temporary and should, wherever possible, be phased out—including for expensive technologies, such as offshore wind, which are moving closer to market viability (the target price for offshore wind is £100 per MWh by 2020 at 2011 prices).[179] It was also argued that the harmonisation of support schemes might be helpful. Professor Helm argued against support schemes for expensive but relatively mature technologies, such as offshore wind. We explore this argument further in Chapter 5.

86. A particular challenge facing some renewable energies is that of tackling intermittency. Dr Gross noted that there are "very real electrical engineering issues" surrounding intermittency that must be considered, particularly relating to system balancing and response—that is, the speed of change. For example, if the wind output is dropping very quickly in the opposite direction to increasing demand, one needs to be able to manage the lull.[180] It was argued that intermittency can be tackled in four ways: by improving interconnection; boosting the strategic use of electricity through smart technologies (such as smart meters, grids and appliances); developing electricity storage; and through capacity payments, which would encourage investment in gas power.[181] In discussing the issue of intermittency, RenewableUK stressed the importance of physical interconnection, to allow the trading of resources across borders, and regulatory intervention—market coupling and market integration. It claimed that being able to trade across borders will "dampen the volatility and equalise the prices more across Europe".[182] As discussed in paragraph 62, it was suggested that gas could be used as a short-term mechanism to cope with intermittency, whereas ENTSO-E stressed the importance of grid development.[183] There are some renewable energy—such as tidal power and biomass—that are not subject to intermittency. As an increasing amount of wind power comes on to the grid, the challenge will be greater and demand-side response will become more important.[184] We explore interconnection in greater detail in Chapter 6.

87. The Commission expressed its view that the integration of variable sources of energy is technically feasible—pointing to Spain, Germany and Denmark as examples. However, this would require significant development of the grid infrastructure. It warned that, otherwise, there could be a repeat of the problem experienced in connection with Germany, where neighbouring countries were flooded with surplus electricity.[185]

88. There are a range of renewable energy technologies at various stages of development. A number of onshore renewable resources, including wind, could be close to cost-competitive with present fossil fuel prices if the carbon price was more robust, but they are impeded in particular by public opposition as well as strategic uncertainties about energy prices and policy.

89. For much of northern Europe, including the UK, offshore renewable energy will require sustained investment, including by way of support schemes, to bring down costs. We would not support harmonisation of national support schemes but welcome work by the Commission to identify examples of best practice. We agree that support schemes should be temporary and phased out as a technology progresses towards commercial viability.

90. We accept that the increasing development of renewable energy has implications for the continuity of supply due to the intermittent nature of some renewable energy generation. This challenge should not be underestimated, but nor need it be an obstacle to the further development of renewable energy. It can be overcome through demand-side response, interconnection, storage and gas generation, although the necessity for gas to play this role should recede over the medium- to long-term.

91. We conclude from the German energy transformation thus far that, in practice, the safe and reliable introduction of high levels of renewable power requires coordination with neighbouring Member States.

Nuclear

92. We received limited evidence on nuclear power. Most of those who commented were not overly optimistic about its role in future EU energy policy. Mr Tindale supported it as a bridge technology, given that it is expected to take "several decades" to achieve 100% renewable energy.[186] The CBI similarly suggested that nuclear power could be part of a balanced energy mix.[187]

93. We were warned by witnesses such as Mr Froggatt that nuclear power remains politically divisive among Member States, highlighting the fact that there is no EU consensus on the role of nuclear power. For example, whereas Germany has declared its intention to move away from nuclear power entirely, France relies quite significantly on nuclear, and Belgium has reversed its previous decision to phase out nuclear power.[188]

94. Professor Helm was similarly cautious about the prospect of nuclear new builds. He noted that the costs involved at present are very uncertain and also drew attention to the German situation where nuclear reduction has led to coal growth—something we have already identified as undesirable.[189] Professor Stern considered substantial new nuclear build in Europe to be unlikely, largely due to the negative environmental and financial costs, but also due to cautious attitudes in the aftermath of the Fukushima nuclear incident in Japan.[190] We were also informed about the uncertainties in financing nuclear projects across Europe. It was concluded by WWF that, even setting aside its environmental concerns relating to nuclear power, current economic difficulties make it "extremely unlikely" that much nuclear capacity will be built in the UK or the EU over the next 20 years.[191] WWF cited a paper which argued that the complexity and continually rising costs—as well as making appropriate safety, waste management and decommissioning arrangements—associated with nuclear energy would always limit its role in the power sector "worldwide".[192] BNEF identified recent examples of such difficulties in Europe, noting that an "unfortunate characteristic" of recent nuclear projects such as the Olkiluoto EPR in Finland and the Flamanville EPR in France were cost overruns and delays.[193] WWF claimed that issues surrounding insurance and liability further exacerbate the large financial costs associated to nuclear power. Whilst corporate liability for any nuclear accident is capped at around £1 billion by European law, the "taxpayer would pay for the clean-up of any major accident". WWF cited the example of the Fukushima incident, in which compensation costs are estimated to be £35 billion, with the total clean-up costs likely to exceed £160 billion. Therefore, it concluded, if the nuclear industry were to insure itself properly, the electricity would be unaffordable.[194]

95. It was also argued that, from a UK perspective, similar construction delays and cost overruns would be expected. For example, Centrica (who own British Gas), had the option of taking a 20% stake in the UK's nuclear new build programme in a partnership with EDF. Centrica, however, now appears to have opted out of nuclear in the UK and may write off £200 million.[195] BNEF noted that Centrica had reportedly spent £1 billion in upfront costs through to the end of 2012, but feared that the cost escalation of the proposed Hinkley Point projects from £4.5 billion to £7 billion each suggests there may be better investment opportunities elsewhere.[196] Whilst the UK Government announced that they were granting planning permission to EDF to construct Hinkley Point C on 19 March 2013, questions still remain over the electricity price required to fund its construction.[197]

96. WWF warned that there may be additional political and legal barriers to the construction of new nuclear plants. It argued that the UK's current Electricity Market Reform (EMR) proposals on nuclear were "a clear breach of the Coalition Agreement's commitment not to subsidise nuclear power".[198] Furthermore, WWF claimed that the EMR proposals would constitute illegal state aid under EU law as tendering for nuclear energy does not correspond with the legal requirements of the internal energy market.[199]

97. The House of Commons Energy and Climate Change Committee's recent report on nuclear power in the UK concluded that, although the UK has failed to deliver nuclear new build, this does not pose a significant threat to energy security. There could, however, be increased indirect security threats, such as an increased reliance on imported gas.[200]

98. There is not, and there never has been, consensus among Member States with regard to the role of nuclear energy. In the UK and elsewhere, financing remains problematic, both in terms of securing investment and with costs overrunning. Nuclear remains a low carbon option, but its future is uncertain in the EU. Important issues relating to state aid, liability and waste remain to be resolved and must be addressed by Member States and the Commission. Failure to agree the terms of significant new nuclear investment will inevitably increase reliance on alternative energy sources.

92 Q 60, Q 81, Q 235, Q 239, Q 309, Q 353, Q 366, FSR Back

93 Q 45 Back

94 Directive 2009/28 Back

95 Q 60 Back

96 Q 61 Back

97 Q 263 Back

98 ibid., Dr Karsten Neuhoff supplementary evidence Back

99 Q 339 Back

100 Q 239 Back

101 Q 190 Back

102 Gas Generation Strategy, Department of Energy and Climate Change, December 2012 Back

103 CCS is a necessity for a world hooked on fossil fuels, IEA.com, 1 January 2013 Back