Government finally admits it is subsidising nuclear - while cutting help for renewables

The government confirms that it is not continuing the ‘no public subsidy policy’ [for nuclear power] of the previous administration.

That little footnote, tucked away at the end of the announcement of Wednesday’s French-Chinese deal to build a new nuclear power station at Hinkley point, detonates an atomic bomb under the UK government’s already bewildering energy policy and leaves ministers hunkered down in a nuclear bunker.

Just the day before, energy minister Andrea Leadsom said: “It is vital that industries over time stand on their own two feet. I don’t think anyone here would advocate an industry that only survives because of a subsidy paid by the billpayer.” She was justifying 87% cuts to subsidies for solar power, just as they are on the verge of becoming cheaper than gas.

The contradiction does not need spelling out. Nuclear power has had 60 years to stand on its own two feet. The admission it still needs subsidy (after five years of ministers denying precisely that) shows that traditional nuclear power can barely crawl. Whether this admission strengthens the challenge brought by Austria at EU level against the UK that it is providing illegal state aid remains to be seen.

Ministers argue that big nuclear power stations are key to energy security. The spooks disagree, saying having a Chinese-run nuclear power station in the UK for half a century is a hostage to fortune.

Ministers also say they are committed to cutting carbon from the UK energy supply, but that protecting consumers from higher energy bills is vital. Not many would disagree, so why are ministers all but banning new onshore wind farms, the cheapest form of green energy?

It was a manifesto commitment, says the government, presumably included to appease the minority of people who oppose wind farms. On Wednesday night, the House of Lords disagreed and voted down the Conservative’s anti-wind rules.

It’s a mess. But don’t worry, say ministers, we will shortly be announcing new policies – a “reset”. Except this explodes the most precious of all commodities in the energy system: investor confidence.

“A reset is unnecessary and would create delays to investment and increase political risks,” say the energy policy experts Prof Rob Gross and Prof Jim Watson. Over 1,000 jobs have already been culled in the solar industry, with warnings of many more to come, while Leadsom was warned on Tuesday that the UK arm of an international energy company had suffered a credit rating downgrade following the government’s planned cuts to renewable subsidies.

Her response was that the cap on subsidies (the Levy Control Framework (LCF)) was on track to be bust, due to the success of renewable energy, and urgent cuts were needed.

The reality is more complex. LCF spending is projected to be above the £7.6bn cap set for 2020-1, but there is allowance for 20% “headroom”, i.e an absolute limit of £9.1bn. The projections are right at, though not above, this upper limit. The government says its cuts are needed to avoid the risk of the £9.1bn limit being breached and to bring spending down nearer to the £7.6bn figure. But Ed Davey, energy secretary until May, disagrees with the argument, calling it “bogus”.

So down in the bunker, ministers are hacking back successful, cheap clean energy and throwing enormous subsidies at failed, expensive nuclear power. As ever the missing guest at this gloomy party is energy efficiency, the best of all energy policies.

Ministers have rightly ditched the catastrophic Green Deal and promise a new plan shortly. Perhaps that plan will be so ambitious and smart, that the current mess will all make sense. It would be nice to be surprised.

Note: The original blog did not specify Austria as the country mounting the EU state aid challenge. The explanation of the LCF spending has also been expanded since publication.