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By David Hunter, Energy Analyst, M&C Energy Group.

A market mechanism designed to boost new nuclear build should not be misallocated towards existing plant, particularly where government is already heavily involved in shouldering the decommissioning costs.

That is the comment of M&C Energy Group energy analyst David Hunter, following the Liberal Democrats’ call for the UK to introduce a windfall tax on existing nuclear power stations to claw back additional profits.

The party passed a motion at its annual conference in Birmingham saying the money raised should be used to help Britain’s five million “fuel-poor” households.

The Treasury imposed the tax of £4.94/metric ton of emissions from fossil-fuelled power stations in its budget this year.

The so-called carbon price floor “is a great, great plan but it has one flaw, not only does it help emerging renewables, what it also does is give a lift up to old nuclear,” Liberal Democrat lawmaker Robin Teverson told delegates.

“It’s wrong, it’s immoral, it’s not ethical” to use additional charges on household bills “to give new profits to old nuclear for no extra effort.”

The motion, which is not binding on Lib-Dem Energy Secretary Chris Huhne, calls on the government to “introduce a windfall tax on operators of existing nuclear power stations, recovering through taxation the profits they make solely as a result of the introduction of the carbon price floor from April 2013.”

Energy company EDF defended the carbon price floor price saying it will “reward operation of and investment in all low carbon options.”

M&C Energy Group’s David Hunter said: “I'm not surprised this is being raised.  We highlighted in the  past that although some form of carbon price support was necessary to boost new nuclear and put it on a level playing field with competing generation, options should be looked at to avoid a windfall benefit to EDF for existing plant.

“Unsurprisingly EDF has strongly supported a carbon floor since the idea was first mooted, more so than some other generators.

“I think the rationale for a carbon support is based on the reduction of systemic bias towards other fuels when considering new investment.  The argument runs that atomic power investors must (supposedly) build the cost of decommissioning into their business case; decommissioning represents the environmental impact cost for nuclear.

“Meanwhile, the EU carbon market has thus far failed to attach a realistic price to the equivalent environmental impact of fossil fuelled stations, placing new nuclear at a disadvantage.

“With alternative forms of low carbon generation such as renewables currently attracting heavy subsidies, new nuclear has to an extent been 'caught between two stools'.

While that argument is valid, the consumer cost of a carbon floor should not be transferred to operators of established atomic reactors as a windfall benefit.  A market mechanism designed to boost new nuclear build should not be misallocated towards existing plant, particularly where government is already heavily involved in shouldering the decommissioning costs.

“This risks a repeat of the windfall gains made by power generators from selling generous EU ETS allowances in the early stages of the scheme, while passing the cost through to the consumer.

“It shouldn't be beyond legislators' power to design a mechanism that effectively channels the financial benefits accruing to existing nuclear output under the new arrangements towards a redistributive fund or tax rather than shareholder dividends.”

The Liberal Democrat party opposed nuclear power in its manifesto at last year’s General Election, after which it entered government with the Conservatives. The two parties agreed that Liberal Democrat lawmakers could abstain on votes on nuclear energy while the government worked to encourage it. In office, Energy Secretary Huhne has supported efforts to build new atomic stations.

ENDS