UK ENERGY POLICY

Does the UK have an energy policy?

Does the UK have an energy policy?

Introduction

As a new investment option, nuclear power has been doing badly for a decade. There are a few niche exceptions, such as China and possibly Finland, but the general picture is poor. Even where there has been investment activity over this period, as in Japan, the prospects do not seem promising. The explanation for this downturn is in essence relatively simple—the economics of nuclear power have been poor in increasingly liberalised electricity markets.

Market liberalisation is likely to progress further in the electricity systems of industrialised countries. Some recent events (especially power blackouts in the US, UK and Italy in 2003 and the serious problems of the California power system in 2001) have caused some re-evaluation of liberalisation, especially in the developing world. However, the momentum behind liberalisation in the EU and wider OECD world remains powerful. While Governments still set regulatory and policy frameworks, increasing liberalisation means that investment decision-making for electricity generation will ultimately depend on the decisions of private investors. For nuclear power to perform better as a new investment option in these circumstances, one or both of two conditions will then need to be met:

• On the basis of market prices, the economics of nuclear power will need to become significantly more attractive relative to its competitors; • Governments will need to introduce policies, either nuclear-specific or generically in favour of low carbon options, to improve the relative attractiveness of nuclear power to the private investment community.

In practice, significant resumption of nuclear investment will probably depend on both of the above conditions being fulfilled. Within a mainly UK setting, the first major part of this paper explains the state of nuclear economics in current market conditions and explains why the option of nuclear investment remains unattractive to the private investment community.

The second main part of the paper introduces the framework of justification for Government intervention in energy markets, in terms of both sustainable development and 'market failure'. It looks at arguments for interventions specifically in favour of nuclear power (analogous to those often currently made in favour of renewable energy) as well as impacts on nuclear power of more generically low-carbon support policies. It concludes by defining the economic characteristics that nuclear technology might need in order to play a significant role in a long-term low-carbon energy system.

UK energy policy context

The UK set itself a groundbreaking climate change mitigation policy with the publication of a long-term national carbon dioxide (CO2) reduction target of 60% by 20501 (BERR, 2003). This target was established in response to the climate challenge set out by the Royal Commission on Environmental Pollution (RCEP, 2000). Over the last few years, achieving this landmark target has generated intense discussion on alternate technology pathways, behavioural implications and sectoral and economy-wide costs. This debate included achievement of competing energy policy goals-notably energy security (BERR, 2007). However, new evidence concerning stabilisation targets and what this mean for burden sharing (IPCC, 2007), as well as ...