Energy firms lured by incentives on carbon emissions and radioactive waste

The government gave the go-ahead for a new generation of nuclear power stations yesterday but stepped into a fierce row over financial sweeteners to private sector operators. John Hutton, the business secretary, insisted there were no subsidies but the small print of the white paper showed concessions had been given away.

Private companies who wanted to build new stations would have to pay for the entire cost while "meeting the full costs of decommissioning and their full share of waste management costs", argued Hutton who said atomic power was needed to reduce carbon and the growing reliance on energy imports. But a campaign by French nuclear operator, EDF, and others to win government help for an attractive financial framework which would make nuclear cost-effective against other forms of power appeared to have borne fruit.

· The government is effectively making electricity generated by coal or gas more expensive by promising "greater certainty for investors" through unilateral action to underpin the price of carbon. Coal and gas power stations emit relatively large quantities of CO2 for which they will need costly permits while atomic power is virtually carbon free.

· The public purse could ultimately be used for all decommissioning of new plants and waste disposal. The current bill for dismantling existing plants is estimated at over £70bn with an additional £20bn for the disposal of waste.

· Ministers are also looking at putting a ceiling on the price private firms will have to pay for dismantling reactors at the end of their life, reducing companies' risks and making it cheaper for them to borrow.

The Cabinet is determined to back the industry, saying there should be no artificial cap on the amount of nuclear energy provided to the grid. Hutton, facing a backlash from green Labour MPs and the Liberal Democrats, won support from the Conservatives after months of mixed messages, ensuring investors can be confident the political climate will remain supportive of nuclear power in the long term.

Previously the Tories have only backed nuclear power as a last resort, but Alan Duncan, the shadow business secretary, said: "Our position is, by and large, similar to the government's. If business wants to invest on that basis, it should be free to do so, and it should know that the investment climate will remain stable under any Conservative government."

The Lib Dems said the government had not been able to give a cast iron guarantee that taxpayers will not have to subsidise the costs of nuclear in the future. "This was a great big signal to the industry that the government will see it right," said Steve Webb, environment spokesman.

EDF, the German group, Eon, and British Gas parent group, Centrica, all gave an enthusiastic welcome to the move saying it was a vital step towards a new generation of facilities. Vincent de Rivaz, chief executive of EDF in Britain, said: "EDF will now step up its plans to take part in building a series of four new nuclear new plants in the UK, using European pressurised water reactor technology, with the first one completed by the end of 2017." EDF was pleased with the commitment to provide a "UK mechanism" for encouraging low-carbon technologies.

The Department of Business, Enterprise and Regulatory Reform insisted no special case was being made for nuclear. It had been working on some kind of carbon scheme that would enable investment in all types of low-carbon technologies to continue if there was any hold-up in a replacement for the EU emissions trading scheme which runs out in 2012.

But Greenpeace accused the government of providing covert subsidies to give the industry the support it needed. "Nuclear companies will be able to cap their liabilities, leaving the taxpayer exposed if estimates for dealing with waste change. The government admits that the public will pick up the liabilities," said director John Sauven.

The pressure group said it was impossible to estimate how much it would cost to decommission the reactors. "The length of time between starting a new nuclear plant and putting the waste into repository could be over 150 years. Any discount rate or estimate on what costs might be in 2170 is pie in the sky".

The New Economics Foundation accused the government of "fixing the market". Its policy director Andrew Simms said: "Nuclear power will not survive on its own in the market place. The government will have to use voodoo economics to underwrite capacity. The only beneficiaries are the big energy companies.".

Other hidden subsidies not included in the white paper could be the cost of adapting transmission lines from any new plants which are expected to be considerably larger than existing plants. Security and transporting waste fuel which can run into millions of pounds a year would also come from the public purse.

The government has repeatedly said that replacing nuclear capacity would be up to the private sector to initiate, fund, construct and operate and cover the costs of decommissioning and their full share of long term waste management costs.

The specific references to some kind of financial incentives comes in Section 32 of the document which says companies would be able to rely on the EU emissions trading scheme to build investor confidence but it also goes further. "We will also keep open the option of further measures to reinforce the operation of the EU ETS in the UK should this be necessary to provide greater certainty for investors," it says.

There are also commitments on waste and decommissioning in section, 3.52. Operators are responsible for decommissioning and waste management costs but "if the protections we are putting in place prove insufficient, in extreme circumstances the government may be called upon to meet the costs of ensuring the protection of the public and environment."

A maximum figure is also being put on waste costs to cap long term liabilities to private companies. Section 3.75 says: In response to the consultation, energy companies have indicated that they could be prepared to pay a significant risk premium over and above the expected costs of disposing of waste, in return for having the certainty of a fixed price."

(By Terry Macalister and John Vidal, The Guardian, 11/01/2008)