Nuclear power industry may benefit from climate change levy exemption

Robin Pagnamenta, Energy Editor

The Government is considering fresh tax breaks for Britain’s nuclear power industry that could smooth the way for the construction of a new generation of UK reactors, The Times has learnt.
Whitehall insiders have told The Times that officials at the Department for Energy and Climate Change have been studying the possibility of an exemption for nuclear electricity from the climate change levy, a tax on industrial energy consumption that was created to boost energy efficiency.
The levy, which was introduced in 2001, raises an estimated £1 billion a year for the Treasury. Suppliers pay the levy on electricity provided to businesses to Customs & Excise and then pass on the costs to customers.
Other low-carbon sources of electricity, such as wind energy, are already exempt from the levy, but it draws no distinction between low nuclear and higher-emitting coal or gas generation.

Jeremy Nicholson, a spokesman for the Energy Intensive Users’ Group, an industry association that has been lobbying for the switch, estimated that an exemption for nuclear power would be worth up to £300 million a year to the industry, or £3 billion over the next decade, during which a big construction programme for new reactors is planned.
While no decisions have been made, the tax break would act as a sweetener for energy companies that are considering investing in new nuclear stations by ensuring that nuclear electricity is more competitive compared with electricity generated from gas or coal.
Matthew Farrow, head of energy at the CBI said that the employers’ organisation had been pressing hard for the levy to be dropped for nuclear power generation. He said that the CBI had held regular meetings with Ed Miliband, the Energy Secretary, and officials from his department to discuss the issue, as well as other forms of support for new nuclear infrastructure.
“They are clearly thinking about these issues,” Mr Farrow said. “Our view is that there should be a change to the levy. It’s common sense. Whether that would be sufficient is unclear . . . but any low-carbon electricity production ought to be exempt.”
At a cost of at least £4 billion per 1.6 gigawatt reactor, nuclear plants are far more expensive to build than conventional gas or coal stations and questions have been raised over the willingness of utilities to invest.
For example, a two-gigawatt gas plant being built by RWE, the German utility company, at Pembroke, West Wales, is expected to cost £1 billion.
Last week, EDF, the French utility group, told The Times that it was not guaranteed that the plants would be built unless the Government offered guarantees to ensure profitability.
However, a spokesman for the Department for Energy and Climate Change insisted that the Government had “no plans” to introduce any form of additional financial support for nuclear power. “The economics of new nuclear stack up as it’s the cheapest form of low-carbon baseload in the UK. The fact that three consortia have now invested heavily in sites suitable for new build in the UK shows that’s the case.”
On Monday, Mr Miliband reiterated the Government’s position that there would be “no subsidy for new nuclear” and that he was focused on striking a strong deal at the forthcoming United Nations summit on climate change in Copenhagen that would bolster investment in low-carbon power by driving up carbon prices.
Such an exemption would not be classed as a formal subsidy and would not require primary legislation, Dominic Maclaine, of New Power Consulting, said. “It would make nuclear electricity cheaper compared with fossil fuels and is one possible way that they could provide a financial incentive ... It would be easy to do.”
The CBI argues that other incentives, such as a floor price on the permits that companies need to pay to emit carbon dioxide, may be preferable.
“I suspect that we will see a change in the fiscal treatment of carbon,” Ian Marchant, the chief executive of Scottish & Southern Energy, said.
The Government set out plans on Monday for a big expansion of nuclear power, including the construction of ten reactors by 2025. The aim is to increase the share of power generation from nuclear electricity to 25 per cent by 2025, from 13 per cent last year.
All but one of the UK’s reactors are due to be retired from service by 2023.
The Government hopes that the new nuclear plants will help to plug a yawning supply gap that is opening up in Britain’s energy supplies by 2015 as ageing coal-fired stations are taken out of service to meet tough new European Union pollution rules.
The first new reactor is due to be built at Hinkley Point in Somerset by EDF, which hopes that it will be operational by the end of 2017. EDF also hopes to build two new reactors at Sizwell in Suffolk.
Horizon Nuclear Power, which is a joint venture between E.ON, another German utility group, and RWE, is planning to build four more reactors at sites at Oldbury in Gloucestershire and Wylfa, on Anglesey. Each of the new EDF plants will generate 1.6 gigawatts of electricity — enough to supply a city the size of Manchester — and are designed to last for 60 years.
MPs’ warning
MPs are likely to step up their calls for an investigation into how the “big six” energy suppliers are failing to pass on plunging wholesale gas prices to consumers (Angela Jameson writes).
More than 100 MPs have now signed an Early Day Motion calling for a Competition Commission investigation.
Greg Clark, the Shadow Energy Secretary, and Simon Hughes, the Liberal Democrat energy spokesman, have signed the motion, tabled by John Grogan, the Labour backbencher.
Ofgem, the industry regulator, rejected a call for a Competition Commission inquiry last month but Ed Miliband, the Energy Secretary, could choose to refer the energy suppliers directly to the Competition Commission.
The big six — British Gas, EDF, E.ON, ScottishPower, Scottish and Southern and npower — were cleared last year by Ofgem of collusion to fix prices, but Mr Grogan believes that the Competition Commission, which has greater investigatory powers than the regulator, could yet find evidence of collusion. He has the backing of Consumer Focus, the national consumer watchdog.
The big suppliers have cut bills by only 4 per cent this year, despite wholesale costs, which make up 60 per cent of the bill, halving in the past 12 months.
Although Ofgem had insisted that the market was working, the regulator’s own Energy Supply Probe, which published its initial report in October 2008, found that pre-payment and electricity-only customers had been overcharged by £500 million between 2006 and the end of 2008.