SocialismToday           Socialist Party magazine

Issue 209 June 2017

Price caps and the nuclear option

In the 2015 general election, the Lib Dem energy and climate change minister Ed Davey (now Sir Ed) poured scorn on Labour’s proposal to introduce a freeze on energy prices. He claimed it would lead to disinvestment in the energy industry and a capacity crunch, eventually causing the lights to go out. The same charge was made against greens and socialists who opposed nuclear power. Was there any truth in Davey’s claims in regard to price capping, compounded now by a crisis in plans to expand nuclear power linked to major problems in the two main global contractors, Toshiba and EDF?

Ed Davey and Theresa May’s current Tory government say that nuclear expansion is the only way to avoid a capacity crisis. This of course ignores existing viable renewable options. Moreover, it is ironic that the ‘tested and safe’ route of nuclear power is in big trouble due to crises in both the main contractors. Despite the huge subsidies given by the British government to the French state-owned EDF, which is leading the consortium building the Hinkley Point reactor in Somerset, there is serious doubt that it will be completed. This is due to severe delays and technical problems in the construction of very similar power plants in France and Finland.

Meanwhile, Toshiba has warned that it is in danger of going out of business after its US affiliate, Westinghouse, filed for bankruptcy protection. This collapse was also linked to technical problems in building new reactors. Delays and cost overruns at plants at Waynesboro, Georgia, and Jenkinsville, South Carolina, were blamed on a lack of expertise in installing new plant because of the contraction of the industry since the Chernobyl disaster in 1986.

To overcome these deficiencies Toshiba bought the nuclear contractor CB&I Stone and Webster in 2015, but that deal backfired leaving the company on the verge of bankruptcy. By the way, Toshiba was a main contractor for the Fukushima nuclear power station in Japan, where the eventual clean-up costs for the 2011 disaster have been estimated at $450-630 billion.

Toshiba was also a key member of the consortium due to build three reactors for a power station at Moorside in Cumbria as part of the government’s nuclear expansion strategy in Britain. The plan was to use the same designs that led to the problems in the US. The firm is now considering quitting the project, and the Tory government is searching for an alternative. A South Korean firm, Kepco, is in the frame. However, it would take many years for it to get regulatory approval to build a plant with completely new technology. The company received its one and only order for a reactor outside South Korea in 2009, and the new Korean government says it wants to move away from nuclear power towards renewables.

Despite the huge costs, political uncertainties, technical problems and safety issues the Tories seem determined to push ahead with nuclear, even though there is no mention of it in their general election manifesto. Maybe this is in recognition of the chaos in the industry. One reason for the Tories’ continued backing of nuclear power could be their desire to maintain a capability to produce plutonium for nuclear weapons. In addition, they do not want to be dependent on imported gas as North Sea reserves run out, even though it is the cheapest (but polluting) option. If their blinkered support for a nuclear industry in its death throes continues, a capacity crunch really could be on the cards.

An energy price cap, first put forward by then Labour leader Ed Miliband in 2015, has also been linked to a crisis in capacity – this time through the operation of market forces. Clearly, people need to be protected against the rigged energy market and being ripped off by suppliers. However, trying to apply a cap in the framework of a market system would probably be counterproductive as the generating companies would attempt to play the complicated ‘rules of the game’ to their advantage.

At the moment, two-thirds of consumers are on the standard tariffs that would be controlled by a cap, in theory. The rest, who have found the time and patience, have shopped around for a reduced tariff. They would not be covered by the cap so the companies would be free to increase the price for those customers ever closer to the cap price. The end result could be a rise rather than a fall in overall prices.

In the event of a cap on prices and a squeeze on profits, energy companies could resort to an investment strike that ultimately could threaten the security of power supplies. To this extent, Davey’s criticism of Miliband’s proposal, although self-serving and hypocritical, had some basis. If profits were squeezed, a simple way for the corporations to retaliate would be to cut down the buffer spare capacity that is built into the grid to cope with peak demand in winter. They would probably justify the increased risk to the government and a toothless regulator by pointing to global warming!

As long as private interests remain dominant, consumers will be exploited, security of energy supply could be threatened, and environmental sustainability will be given a low priority. Jeremy Corbyn’s programme for energy addresses this and is very welcome. His pledge to take energy back into public ownership represents a big step forward. If speedily implemented this would protect consumers, ensure security of supply and make it possible to seriously address environmental issues.

There are big dangers, however, in the piecemeal way this programme has been put forward in the Labour Party manifesto. Only one publicly-owned power company in each region is to be set up initially and no timescale is being put forward for the nationalisation of the electricity grid. Under these conditions the profit motive will remain dominant and it will not be possible to achieve the aims set out.

An energy price cap is being put forward as an emergency measure during a transition period to a fairer system for bill payers. If this is a recognition of the fact that, even in the relatively short term (never mind the medium and long term), a price cap would be undermined by the manoeuvring of the private energy companies, the necessary conclusions need to be drawn to ensure a fair deal for consumers. A key first step must be the immediate public control of the national grid.

Labour’s manifesto also commits to nuclear power but, as discussed earlier, the present chaos in the industry poses potential dangers for security of supply if an energy strategy is based on the expansion of this sector. There are, of course, other dangers with nuclear: the safety risks involved in the storage of toxic radioactive waste and the possibility of a future Fukushima-style disaster.

However, with decisive, speedy action to bring in democratic public ownership to remove the profit system from energy generation, it would be possible to plan a secure, environmentally sustainable and consumer friendly industry. Jobs would be guaranteed, including in nuclear, as the power stations and plants were decommissioned in a safe, planned way over several decades.

Pete Dickenson

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