C-Questor Carbon Markets and Climate Change News Letter

Going nuclear – cheap and beneficial for Scotland?

Published Date: 12 September 2008
By Peter Jones

SOARING energy prices are big news once again this week, with Gordon Brown's announcement of £910 million being squeezed out of the energy companies to help poor folk deal with their bills. Poor old Gordon was promptly met with a blast of complaint that his proposals were rubbish. An energy economist might conclude from this that big gas and electricity bills are a hot political topic because the public is highly sensitive to high prices.
What might this mean for the Scottish Government's plans to ramp up the amount of electricity generated from renewable sources? The question is worth asking because conventional political and public wisdom appears to be that more renewables are good because they mean less environmentally damaging greenhouse gas emissions. But what if renewables also mean electricity prices go even higher than they do now? What would we think about them then?Earlier this week, Jim Mather, the energy minister, was boasting of a "renewables surge" that would see Scotland easily surpass its target of having 31 per cent of electricity coming from renewable sources by 2011. Of course, he added, this means Scotland need not make the "costly, harmful, and damaging mistake" of new nuclear generating plants.In the debate around future energy needs, the price of electricity that might come from various technologies is rarely discussed. That's because hard data is difficult to come by and, I suspect, the supporters of various technologies don't like to talk about them. But we do need to talk about prices, otherwise we are at risk of winding up with the biggest electricity bills in Europe.A reasonably impartial source for figures is the Royal Academy of Engineering (RAE). In 2004, it published a study examining the costs of competing technologies. Gas-fuelled electricity worked out at around 2.2-3p per kilowatt hour (p/kWh), coal at about 2.5-3.2p/kWh, Since 2004, rising gas and coal prices have raised costs by just under 1p/kWh. Nuclear, including decommissioning costs and not so affected by fuel cost hikes, comes out at about 2.3p/kWh.Among renewables, hydro is cheapest at about 1.5p/kWh. It would be good to have lots of it, but as the Scottish Government has recently told us, the maximum hydro generating capacity that can be built would only meet about 3 per cent of Scottish electricity needs.Other forms of renewables are much more expensive. Biomass, says the RAE, is estimated to be about 6.8p/kWh, onshore wind is about 3.7p/kWh, offshore wind about 5.5p/kWh and wave and marine technologies work out at about 6.6p/kWh. No figure is provided for coal-fired stations equipped with carbon capture and storage, but the RAE says the technology could add between 1-3p/kWh to existing coal costs.It might be argued that, as the technology involved in renewable generation matures, the costs should fall. But various studies suggest that most of the maturing technology cost reduction has already taken place. And there are a lot of unknowns involved with offshore wind and wave, such as the effects of salt corrosion, which may increase costs. The fact remains that, at current costs and with the exception of hydro, renewables are not economic. Nobody would build them because gas, coal, and nuclear produce cheaper electricity.But, of course, many wind farms have been built because they get a subsidy. Under the government's renewable obligation scheme, all electricity generators are obliged to supply a percentage (9.1 per cent this year rising to 15.4 per cent by 2015-6) from renewable sources. Most cannot, so they buy renewable obligation certificates from green generators to fill the gap. Generally speaking, wind farms get about half their income from selling their electricity and about half from selling certificates. In turn, we all pay for the cost of the certificates by a bit extra on our bills – about £10 a year now rising to £20 by 2015.This is not the end of the environmental levies that we all pay. There are schemes aimed at cutting the amount of carbon emissions. One is the British government's carbon emissions reduction target, which is aimed at increasing the energy efficiency of homes and now costs the average gas and electricity customer about £38 a year. Another is the European Union's Carbon Trading Scheme, which penalises companies producing lots of carbon and is now reckoned to add about £31 to average bills. In total, the green extra on the average household bill is now about £80.This cost will steadily increase as the restrictions on carbon production get progressively tighter. It will also rise as more and more renewables come on stream. At the moment, they supply a relatively small percentage of our electricity and so the overall subsidy needed to make them economic is relatively small. But as the renewable sector enlarges, so the subsidy required will also get bigger and that will be reflected in our electricity bills.Will we happily pay it? The furore over government help to the fuel poverty-afflicted this week suggests that we might not. Especially as there is an alternative – nuclear power.Let me say that I am no great fan of the atom-smashers and I am generally willing to pay to see windmills and wave generators sprouting around the country. I am not so sure, however, that all Scots will take the same view once they become aware of the costs and what it means for electricity bills. The Scottish Government is confident that it has public opinion behind it in opposing nuclear. But the economic facts are that it is cheap, compared to wind and wave. Moreover, it will not be subject to the carbon taxes levied on coal and gas because it does not produce much greenhouse gas. Already there are divides opening in the green movement with some activists, such as George Monbiot, beginning to think that using nuclear to cut carbon emissions might be a more important environmental objective than stopping further increases in the radioactive waste pile.There are lots of other arguments to consider here, such as the fact that higher electricity bills might encourage everyone to be more energy efficient. But I also worry that ruling out nuclear might be a costly, damaging and harmful mistake.• Constructive, cogent comments welcomed at: pjones@ednet.co.uk.