The nuclear industry's secret subsidies

The industry may well be 'back with a vengeance', but taxpayers could be unwittingly subsidising its growth

David Lowry
guardian.co.uk,
Thursday September 04 2008 19:30 BST

Today, several hundred nuclear industry executives will gather in London for the British-based World Nuclear Association's annual symposium.
A major session – The nuclear renaissance: redefining the global framework – chaired by Keith Parker, chief executive of the UK Nuclear Industry Association (NIA), will be devoted to the new opportunities expected as new nuclear build is back on the energy agenda, "with a vengeance", in the words of former prime minister Tony Blair.
The session will explore how changes in the law affecting nuclear development has made it much more attractive for private financiers to commit their investment capital.
Parker's NIA colleague, Tristram Denton (in a letter to the Guardian on August 19), was right in stating that "government has made it clear that the private sector will have to pay the full costs of any new nuclear power generation in the UK," but the government is not telling the full story. In two key nuclear expenditure areas, official, if obscure, statements have indicated that subsidies will continue.
On the final day of the parliamentary session before recess this year, energy minister Malcolm Wicks told Labour backbencher Paul Flynn MP in a written answer that:
Whilst the impact of any call on the proposed nuclear indemnity could be very high, there is only an extremely small possibility of the indemnity ever being used, and it is therefore not possible to put a meaningful financial value to the indemnity. The impossibility of quantifying the monetary value of the indemnity is the main reason that there is no commercially available insurance, and the reason an indemnity is needed.
Flynn had asked what was the financial value of the insurance indemnity against claims deemed to be "uninsurable" to be granted to the successful bidder to manage Sellafield. In an earlier answer, Flynn was told that ministers had:
Been informed by the Nuclear Decommissioning Authority (NDA) that it expects to have to grant an indemnity against uninsurable claims arising from a nuclear incident that fall outside the protections offered by the Nuclear Installations Act and the Paris/Brussels convention.
The issue is complex, but the only conclusion that can be drawn is that a significant taxpayer-funded insurance subsidy is being offered to the nuclear industry.
Moreover, in the latest annual report (pdf) of the Office for Civil Nuclear Security (OCNS), quietly released on August 15, it records:
The OCNS budget for this reporting period was £2,481k. This total, and a charge for overhead and corporate costs of £665k, was recovered from the civil nuclear industry and from the DBERR as a charge for OCNS regulatory services.
DBERR is the Department for Business, Enterprise and Regulatory Reform. This means an unquantified taxpayer subsidy, through DBERR, also went to pay for part of the necessary security arrangements applied to commercial nuclear power.
What about elsewhere? Much has been made by the nuclear industry of the new reactor, Olkiluoto 3, being built by French construction giant, Bouygues Travaux Publics, some 155 miles north west of Helsinki in Finland (next to two other reactors built in 1978 and 1980) as a model for the nuclear energy renaissance they would like to see develop globally. But the reactor has had serious problems in construction, with concrete and welding problems, as well as a serious fire, with the result that it is already two years behind schedule. This is bad news for the showcase 1,600 MW EPR (European pressurised prototype reactor), which is based on a design concept developed by nuclear giant Areva, a Franco-German consortium formed by Framatome ANP and Siemens. Olkiuoto 3's original budget of £2.5bn has already overrun by an extra £1bn.
But who is paying this ever-growing bill? Details released so far suggest that the reactor is being supported by a unique financing package. In January 2006, energy investment analyst Hugo Peek (head of power and utilities at ABN Amro) described its components thus:
Syndicated loan of €1.95bn signed December 2003:• Bayerische Landesbank (BLB), BNP Paribas, Handelsbanken, JP Morgan and Nordea• Euribor + 52.5-57.5bps• Banks received 30bps for €150m • In addition to the syndicated loan, bilateral loans worth €550m were negotiated, €1.6bn of the original facility refinanced in June 2005• The deal was said to be oversubscribed, with an increase from the original target amount of €1.5bn• MLAs were BayernLB, BTM, BNP Paribas (books), Nordea (books, docs) and SEB (books, facility agent)Tenor is seven years, with pricing currently undisclosed.
The BLB is a majority Bavarian state-owned bank, owned by the so-called free state (Freistaat Bayern). This is publicly backed investment, albeit from abroad.
But just as in the UK, the Finish government insists the new reactor will be privately financed. "The government neither builds nor funds the construction of nuclear power. The projects are implemented solely on a commercial basis," says Riku Huttunen, deputy director general at Finland's ministry of employment and the economy.
And at a global financing summit for new nuclear plants, in Paris in June 2006, Paavo Lipponen, former speaker of the Finnish parliament, who, as prime minister, laid the foundation stone for Olkiluoto 3, said:
To finance for the new unit being built in Olkiluoto the owners pay 20% equity capital and grant a loan on equity terms covering another 5%. The remaining 75% has been obtained from international finance markets through a tendering process. TVO received several offers from financial institutions and, thanks to stiff competition, the loan terms are favourable. The Olkiluoto 3 project has not received public aid from the Finnish state, either in the form of guarantees or grants.
But what some digging around establishes is that the French export credit agency Coface, has provided loans of €610m in "export" credit guarantees for Olkiluoto 3 to TVO, loans which also assist Areva. Additionally, Svensk Exportkredit, the Swedish export credit organisation, has provided 110m Swedish crowns (€1m). So two foreign states are providing effective publicly financed support. Lauri Myllyvirta of Greenpeace Finland has confirmed this week that both Greenpeace and the European Renewable Energies Federation are appealing to the European court of justice on the European commission ruling that these export credits do not count as state aids.
Other investors include power company TVO, whose investors include Fortum and Pohjolan Voima Oy (PVO), Finland's second-biggest energy company, plus forestry and paper giants UPM Kymmene, and Stora Enso. In addition, a host of publicly owned municipal energy companies have invested.
The French finance magazine Capital claimed in May that Areva could be obliged to pay €2.2bn in penalties to Olkiluoto 3's owners, Finnish power generator Teollisuuden Voima Oyj (TVO) for delays in the construction of the plant, an assertion swiftly denied by Areva.
Back in Britain, in the September edition of Prospect, Tom Burke, formerly executive director at Friends of the Earth, pens a excoriating critique of the optimism of the nuclear sector that an atomic renaissance is within their grasp. He wrote:
The government has pledged that there will be no subsidies for new nuclear construction. But this was never credible, and it is already possible to detect signs of retreat. In 2006 the government bravely promised to 'make sure that the full costs of new nuclear waste are paid by the market'. By 2008 this had mutated into the more nuanced: 'The government will [set] a fixed unit price [for] waste disposal at the time when approvals for the station are given.' This effectively caps the costs of nuclear waste disposal to the operator and transfers the risk of cost overruns on to the taxpayer.
Burke concludes: "It is hard to argue that this is not a subsidy."
It is hard to disagree. So nuclear critics, such as CND's Kate Hudson, are correct to assert that nuclear subsidies do indeed exist.