A Game of Atomic Poker Britain's Nuclear Renaissance in Doubt under New Government

Britain's previous government had visions of a nuclear renaissance for the country. But the new energy minister in London is an atomic energy opponent and utility companies, including two based in Germany, fear he may derail their plans.

The Sellafield atomic power plant in Great Britain: Will the new government in London imperil a planned nuclear renaissance in the country?

The Sellafield atomic power plant in Great Britain: Will the new government in London imperil a planned nuclear renaissance in the country?

Volker Beckers in an electric company man, through and through. For the past 17 years, he has worked for the German energy giant RWE. For the past seven, he has been in Swindon, England, where as the head of the RWE British subsidiary npower, he has been pushing for a renaissance in nuclear power on the island. The company is planning two new nuclear power plants in a joint venture with its German rival E.on. The Germans have already purchased the property at two locations in Wales, and they have invested millions.

Chris Huhne, however, is more likely to be labelled an opponent of atomic power. He is on record as saying that nuclear technology leads to a "dead end." His party, the Liberal Democrats, have been fighting with the same fervor against nuclear reactors over the years as Germany's Green Party has.

The two men could hardly be any different from each other, but they have been meeting a lot in recent days. For the past two months, Huhne has served as minister for energy and climate change in Prime Minister David Cameron's coalition government pairing his conservatives with the LibDems. As such, Huhne is responsible for Britain's nuclear energy policy. For Beckers and his colleagues at the "Big Six," the other major energy utilities in Britain, Huhne's appointment is nothing short of a political catastrophe.

Prior to May elections, the triumphal march of nuclear power in the United Kingdom had seemed unstoppable. The business-friendly Labour government had helped along plans to build a new generation of nuclear power plants, and the conservatives had seemed set on pursuing a similar agenda. The first newly built British plant in more than two decades was supposed to go online by 2017. No one took the naysayers from the Liberal Democrats seriously; but now a LibDem is at the helm of the ministry in charge of atomic energy policy.

Industry leaders are trying to play down their frustrations. Vincent de Rivaz, the head of the British subsidiary of France's EDF Energy, says Huhne is "a man one can do business with." And Becker of RWE only had words of praise for former banker Huhne during a recent dinner with journalists in London.

No Subsidies for New Nuclear Power Plants

But it is a culture clash, and it remains unclear who will emerge victorious. "The LibDems fought the general election on a policy of no new nuclear (plants) and this seems to be setting the tone for policy decisions," says Ian Parret, an analyst at the British energy consultancy firm Inenco.

On paper, everything is business as usual. In their coalition contract, both the Liberal Democrats and the Tories acknowledged the construction of new nuclear plants. But there was one important caveat: No public subsidies could be used in their construction. All the costs for construction, operations and disposal would have to come from the industry itself.

In times when governments are forced to undertake painful savings measures, public gifts totalling in the billions to energy companies are a tough sell to the public -- and Cameron's government has already shown that it is very serious about austerity measures. If it remains firm, then industry's dream of a nuclear renaissance in Britain will likely be over. "Unless they get subsidies, no new nuclear power plant will be build on British soil," says Walt Patterson of the independent think tank Chatham House.

The issue will now hinge on how strictly Huhne adheres to the coalition agreement. How will he define the term subsidy, for example? And what represents allowable assistance? There is a whole slew of indirect subsidies that could make investments in nuclear energy more attractive.

One possibility being discussed is a minimum price for CO2 emissions set by the state. In a recent interview with the Sunday Telegraph, Beckers said he wants existing market mechanisms used to attract investments in renewable energies to be expanded to include nuclear.

'A Very Limited Window Opportunity '

The change of government has create an atmosphere of palpable disquiet in the offices of energy companies, where executives are having trouble predicting how the new minister will act. Their suspicion that he will delay the planning process has already been confirmed. Last week, Huhnes' ministry made the surprise announcement that it would once again review a sustainability study on nuclear power carried out by the previous government. That will take at least six months.

Nor was that the first setback for the nuclear industry. In June, the government withdrew a loan agreement worth in excess of £80 billion (€95 billion, $122 billion) to steelmaker Sheffield Forgemasters. The money was to be used to finance a new steel press. The cancellation means that EDF Energy will not be able to build its new plant by 2017, says Inenco analyst Parret.

With doubts growing about the government's future actions on nuclear energy, industry associations have multiplied their lobbying efforts. The "Big Six" have come up with horror scenarios in an effort to prod the government to move. Should nothing be done, they warn, Britain could face an electricity shortage within just a few years. In its "Energy Action Plan," the manufacturers association EEF warns of a "very limited window of opportunity."

Britains energy infrastructure is indeed aging rapidly. Between 2015 and 2020, the country is expected to lose around 30,000 megawatts of electricity production capacity because of plant shutdowns, including natural gas- and coal-fired facilities as well as seven of the country's 10 nuclear power plants that are still in operation. Furthermore, Britain is lagging behind when it comes to renewable energies from wind, solar and hydro power. Renewables make up just 6 percent of the energy mix -- in Germany that figure is 15 percent.

Huhne Sends Mixed Signals

Around £200 billion are needed by 2020 to renovate Britain's ailing energy infrastructure, national energy agency Ofgem estimates -- twice as much as the total investment made in the past decade. So far, it remains unclear where that massive sum should come from.

Experts, however, say that warnings of blackouts are exaggerated. The trade publication New Power notes that gas power plants with a capacity of 14,000 megawatts have already been approved for construction. Additional plants could be built relatively quickly. Besides, the economic crisis has caused the energy industry to stagnate -- and it could continue to do so for the foreseeable future. "The risk of the lights going out this decade has been substantially reduced by the downturn in the economy," says New Power Editor in Chief Dominic Maclaine, noting that consumers are more energy conscious in times of crisis. And in an emergency, the lifespans of existing nuclear power plants could also be extended.

For Germany's RWE and E.on, that's not good news. Previously, the companies only operated gas, coal and wind farm plants in Britain. But in 2009 they formed the joint venture Horizon Nuclear Power in order to profit from the British nuclear renaissance. By 2025, they planned to have two nuclear power plants online in Wales with a capacity of 3,000 megawatts of power.

A spokesman for Horizon Nuclear Power said the company is still sticking to its timeline. But the company is concerned about the next steps the minister might take. So far, Huhne has sent out mixed messages. In interviews and speeches, he has said he doesn't want to create any hurdles for the nuclear industry. But he has remained firm in his opposition to subsidies.

"There is no indication that he will depart from his position," says energy expert Patterson. "Politicians are politicians when they come under pressure. But Huhne seems quite convinced."

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gunnar.kaestle 08/09/2010
1. misprint
The loan agreement to steelmaker Sheffield Forgemasters was £80 million, not billion. Nevertheless, I'd say it's a risky business to build new baseload plants in a windy area. Missing flexibility is a reason for negative power prices, which reduces the cash flow of a unit unable to switch off. Marco Nicolosi (2010): Wind Power Integration, negative Prices and Power System Flexibility http://www.ewi.uni-koeln.de/fileadmin/user/WPs/ewiwp1001_01.pdf
BTraven 08/16/2010
They built outdated power plants instead. The coalition must have committed the biggest verbal electoral fraud (voter fraud) in the history of contemporary elections. They have broken almost all promises uttered during the campaign. http://www.guardian.co.uk/environment/2010/aug/15/coal-fired-power-stations-coalition
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