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Deloitte comments on the future of the nuclear industry under the Conservative/Liberal Democrat coalition |
Robin Cohen, utilities partner from Deloitte said:
“Following the publication of the Conservative Liberal Democrat coalition agreement, the brief of the new Energy Secretary will be challenging, particularly given the different ideologies of the two parties. That said, the proposals are not inconsistent with Labour’s past policy but include also the provision of a carbon price floor, something that potential nuclear operators have been requesting. What may be different is the level of priority given to the advancement of new nuclear build, which could be a challenge to how the country’s energy needs are met.
“The UK is facing an energy shortage and over the next five years up to 20% of power generation capacity will be decommissioned. As a result action is required sooner rather than later to ensure that renewable energy is obtained at costs that keep the UK economy competitive. The new Con/Lib coalition will need to address some key challenges to ensure the new nuclear power station construction programme can continue and for nuclear power to play its part in the UK energy mix. The UK faces international competition from the US, France, China and many other developed countries for investment in low carbon generation, including nuclear. Ensuring that planning rules and infrastructure are structured to support the nuclear and large scale renewables industries is critical. It is time for a clear eyed assessment of the delivered cost of the various renewable and low carbon technologies, taking account of variability in actual output.
“Setting a floor under the carbon price would appear to be an uncontroversial measure but its implications are potentially significant. This suggests that the underlying premise of the carbon price is flawed and current market mechanisms are ineffective. It also suggests that there could be windfall gains for other forms of generation at a time when such cost inflation would be unwelcome. A consequence of this is an increased focus on the role of feed in tariffs and capacity payment mechanisms. The new government will need to consider whether the time has come to review the structure of the wholesale electricity market to address these and other complexities and to ensure that the UK ends up with a workable energy mix at affordable prices.
“The possible four year derogation, to be voted on by the European Parliament in July, from EU rules on the closure of the more polluting coal fired power stations by 2015 potentially gives a window of opportunity for considered changes in the power industry’s incentives and which should not be wasted.”
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