The Exceptional Economics of Nuclear Energy

David Hess, World Nuclear Association Communication manager, examines the recent Ecofys draft report

Energy reports come and go but every now and then one grabs your attention -for all the wrong reasons. The recent interim report "Subsidies and costs of EU Energy" is one such report. Prepared by energy consultancy Ecofysi for the European Commission, it is intended to inform future European energy policy. It is fair to say that this prospect has raised eyebrows of quite a few members of the nuclear community.

Let's be clear that the intentions of the work are unquestionably good. A detailed assessment of the cost, subsidies and a financial value for the environmental impacts and externalities of different energy sources is just the ticket for helping Europe to make the right energy choices going forward, especially as it faces the formidable challenges of decarbonising and enhancing energy security. However, when the methodology of such a study appears to be crafted with the intention of reinforcing popular energy beliefs instead of challenging them something has clearly gone awry.    

Without question the interim report is afflicted by a case of 'nuclear exceptionalism'. What this translates to is an excessive focus on 'nuclear issues' while those of other energy sources are downplayedii. In other cases of nuclear exceptionalism the technology simply gets ignored from energy discussions - despite currently accounting for 11% of the world's electricity   (a rather significant chunk of its low-carbon supply at that) and offering clear potential for future growth. The common error of the nuclear exceptionalist is that they mistake efforts by the nuclear industry to account for possible impacts of the technology - such as special waste, safety and liability arrangements - as points against it. In fact the extraordinary amount of resource that the industry dedicates to these matters should count as one of nuclear energy's greatest selling points! Arguably no other industry tries as hard as nuclear to internalise its potential externalities and system costs.

Returning to the Ecofys report, you can read what the World Nuclear Association has to say about it here as well as European trade body Foratom here   and an excellent in depth account by physicist and energy/environment commentator Jani Martikainen here. I'm not going to try and repeat these critiques, but I will highlight just one part of our response which serves as an acute example of nuclear exceptionalism and a rather interesting addition to the popular discourse on nuclear economics in general.

Decommissioning the nuclear subsidy 

A rather surprising finding of the Ecofys report is that nuclear energy received a subsidy of €7 billion in 2012iii. It is surprising because the owners of currently operating nuclear reactors in Europe received no such thing. We are never told precisely what this subsidy is supposed to consist of, but a clue is provided in a remote corner of an annex. The overwhelming components of the supposed subsidy are apparently being handed out by the UK and the EU itself. If you know anything about energy policy in Europe then this should set alarm bells ringing.

Ecofys

Source: Ecofys report

There is no feed-in-tariff, or special tax-credit, or nuclear obligation, or guaranteed offtake (or anything even remotely similar that is normally what we think of as an energy subsidy) received by EDF Energy for operating the UK's current reactor fleetiv. And the idea of the EU offering anything like that to operating reactors is a far cry from the present political reality. So what could this subsidy be, and why is Italy on the list given that the country closed all its nuclear power plants in the 1980s?! The only answer that makes sense is that the majority of this supposed subsidy relates primarily to payments made by these governments to cover the costs of decommissioning legacy nuclear sites. 

Take a second to think about this. You may find yourself asking questions like "hey don't some of these sites hark back to the early days of nuclear technology and isn't technology much better now", or maybe "weren't some early facilities used for purposes other than just producing energy?" or possibly "aren't these sites owned by government and not industry?" Perhaps also you recall some kind of condition imposed by the EU that resulted in the f  orced shut-down of eight reactors in aspiring EU member states in exchange for ongoing financial aid, some of which was nominally to help with the imposed decommissioning. 

Whether or not you share these thoughts and wonder whether such 'subsidies' should be included at all, you may be surprised that they are categorised as a 'cost to production' because you know perfectly well that currently operating nuclear facilities as well as all future ones are required to put aside funds to pay for their eventual dismantlement in a way that quite simply no other energy technology is expected to.

A taxing nuclear question

The sting in the tail of the alleged €7 billion subsidy is that it omits entirely an absolutely vital consideration. This is surprising, since it is not some esoteric classification of government support, but rather an everyday sort of thing that you are no doubt familiar with yourself. When you calculate how much money is in your account at the end of the month, you look at outgoings but also incoming right? Well Ecofys decided not to do exactly that.

The reason given is that all power plants pay the same tax and this is reflected in the price of electricity paid by customers. In fact there are many countries in the EU in which nuclear power is selectively taxed. These are not environmental charges and nor are they equally applied to other electricity forms.

I took it upon myself to try and come up with a reasonably robust figure for the amount of these nuclear-specific taxes in Europe for the year 2012. The exact nature of how the taxes work tends to be complex and only in one or two instances are amounts stated plainly on balance sheets. Added to this is that some of the taxes are being disputed and I have only picked out the largest while ignoring the nuclear-specific tax arrangements of some countries which fell outside the period in question. Despite all this, the message is clear: current nuclear facilities provide a great big subsidy to certain European countries.

 

Country      tax detail (for 2012) 2012 paid (estimate)
Belgium Nuclear tax of 0.5 Euro cents/kWh €479 million*
France  Tax on basic nuclear installations €350 million**
Germany €145 per gram of fissile uranium or plutonium fuel loaded into reactor. This translates to 1.4 Euro cents/kWh (2012 nuclear generation of 100 billion kWh) €1400 million***
Sweden Nuclear tax of 0.67 Euro cents/kWh. (63.5 billion nuclear kWh generated in 2012) €424 million***
UK 0.61 Euro cents /kWh† Climate Change Levy on business and industry (70 billion kWh 2012 nuclear generation, 60% UK business consumption)  €256 million***
Total   €2909 million

 

*known exactly. Source:   https://www.electrabel.com/assets/be/corporate/documents/activity-report-2012_EN.pdf 
**Estimates based on NEA report https://www.oecd-nea.org/law/legislation/france.pdf which cites 2006 values. It may be slightly over as not all such facilities relate to power production
*** estimated by multiplying tax rate by 2012 generation levels
†0.51 p/kWh used. http://www.hmrc.gov.uk/rates/ccl.htm conversion rate of 1.2 euro per pound used. The UK climate change levy affects nuclear plants despite the fact that these emit zero greenhouse-gas emissions during operation 

Note that this does not even include the other general taxes that all energy facilities are reasonably expected to pay. When these are included and when the decommissioning subsidy is (rightly) subtracted then it is almost certain that on balance currently operating nuclear power plants pay more to communities and government then they receive in the form of subsidy.

This is something that I think European policy-makers certainly deserve to be aware of.

Hopefully this post adds a little more depth to the questions of energy subsidies and costs which is, when all is said and done, a complicated affair. I'm certainly not saying that government intervention in energy markets is bad or should be stopped. A significant degree of such intervention is essential if we hope to fundamentally transform our energy systems into one fit for the future. In this regard new nuclear power plants are definitely no exception - and should not be treated as one! However it should be clear that operating nuclear plants are immensely valuable strategic assets. It does not make sense shut them down in the absence of sound economic or technical reasons. 

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i) Ecofys specialises in energy efficiency and renewable energy systems. They were supported in preparing the report by KPMG, the Centre for Social and Economic Research (CASE) and CE Delft.
ii) An example of nuclear exceptionalism might be for instance to include decommissioning in levelised cost calculations for nuclear, but not doing so for other electricity sources. A further example would be calculating a cost for a theoretical major nuclear accident in Europe as an externality, while ignoring the cost of potential accidents of other energy source of the unfortunate number of real accidents that occur all too frequently for other energy forms.
iii) It has to be noted that this was quite a low figure in comparison to the other electricity technologies.
iv) Some are on offer for the proposed new reactors the company intends to build at Somerset and Suffolk. 


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