FT: CO2 Emissions No Longer Driving Factor Setting UK Energy Policy

  • Date: 21/02/13
  • Nick Butler, Financial Times

Carbon emissions are no longer the driving factor setting UK energy policy. The new and dominant issue is cost.

The negotiations between the UK government and EDF over the contract terms for new nuclear development continue. As well as a sizeable gap on the strike price there is also disagreement on the distribution of risks. In some ways this is just a normal negotiating process but behind the meetings and the attempts at news management are two questions.

The first is whether the UK really needs new nuclear.

The suggestion from Ofgem that the UK is facing a short-term capacity constraint could make a casual reader think that new nuclear is the answer. But the timescales are quite different. The predicted risk of a shortfall in capacity is greatest in three to five years from now – 2015 to 2018. New nuclear, after all the delays that put back the original timetable, could almost certainly not be delivered before 2020.

So the question of whether the UK needs new nuclear is a long-term issue.

Five years ago, that question was hardly disputed. Old stations were reaching the end of their natural lives, indigenous gas production from the North Sea was declining and in the absence of nuclear, the UK would become dangerously dependent on imports from Russia. In a crisis, those supplies could be cut off, or pre-empted by other buyers in Europe.

Meanwhile, the nuclear industry, led by EDF, had convinced a once sceptical public that nuclear was safe and clean. Instead of focusing on radiation and waste management, the argument shifted to carbon emissions and global warming. Without new nuclear it was said the UK would be unable to meet its targets under the global climate agreement, which was about to be signed in Copenhagen.

But five years is a long time in the energy business. The emergence of shale gas as a commercially viable source of supply first in the US, and now prospectively across the world, has fundamentally changed the game. The terms of trade with Russia have shifted to the extent that in a buyers’ market Gazprom is desperately seeking ways to retain its market share. The UK has its own shale gas reserves – the scale of which is about to be re-estimated upwards. The strength of US domestic gas supply means that imports are no longer necessary and so LNG tankers are having to find new homes for their cargoes. Bizarrely, for instance, Trinidad is now apparently the main source of supply for imports into Israel.

The bottom line is that in terms of physical supplies and energy security, the UK does not need new nuclear. It would be relatively simple to build a new generation of gas powered stations over the next two decades. The response to the recent OFGEM warning is very likely to be that those new gas stations are built sooner rather than later. Once that new capacity is in place it will pre-empt at least part of the requirement for new nuclear.

This does not solve the question of carbon emissions. Nuclear is carbon free, gas is not, although emissions could be reduced by the application of technology. But carbon emissions are no longer the driving factor setting UK energy policy. The new and dominant issue is cost and that brings us to the second question – why are nuclear costs rising?

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