It's time to come clean on nuclear

SECURITY of energy supply has rarely been a problem for Britain, and, despite the warning chorus, it is not one now. But the way in which gas and electricity are supplied to us is changing rapidly.

For one thing, we are no longer a self-sufficient island. Traditionally, coal heated our homes, powered the industrial revolution and generated most of our electricity.

The development of the North Sea made us self-sufficient in oil and gas for twenty years, a period during which the US and Europe became increasingly dependent on imports.

More recently, the energy landscape has been transformed by the drive to greater competition and the need to reduce carbon and other emissions.

Competition is about cutting bureaucracy, eliminating monopolies and delivering better value to consumers. We now have the most competitive gas and power industries in Europe.

One consequence of liberalisation was the collapse of the coal industry and the replacement of coal-fired generation by new gas-fired plants. Britain has huge coal reserves, but most are uneconomic. Coal is also the worst pollutant among fossil fuels.

The huge expansion in gas demand that followed liberalisation was met from North Sea reserves. But the North Sea has peaked. Already during the winter we import large quantities of gas from Belgium.

In the next few years new pipelines will be built from Norway and Holland, as well as reception terminals for the import of liquefied natural gas from as far afield as Qatar. Of course, it is right to examine these arrangements carefully.

Gas will be delivered into the thriving and competitive British market under standard commercial agreements. Prices may rise but competition should ensure they will be fair prices. Neither Britain or Europe has ever had a serious interruption of a commercial gas flow.

During the Cold War, the French, Germans and Italians contracted - against bitter opposition of Mrs Thatcher and President Reagan - to import huge volumes of Soviet gas from Siberia. The Russians have been extremely reliable suppliers. The market has been allowed to work in gas, but the same could not always be said of electricity.

Successive British governments have failed to face up to the full consequences of liberalisation.

In 2001, the privatised electricity supply industry, which had been operating a state-sanctioned cartel for seven years, met competitive reality with the introduction of the New Electricity Trading Arrangements.

This was a real market in electricity, and, as Britain had (and still has) a 25% overcapacity of power generation, prices plummeted.

Economic logic should have dictated that the most expensive plant be shut. But as this proved to be the nuclear generators owned by British Energy, the government provided emergency support.

This week's rescue package means that the nuclear plants will continue to operate, and that the taxpayer will take on the decommissioning liabilities. Instead, lower cost gas-fired plant were mothballed.

Some are now being reactivated to help meet the winter demand, and there is no reason, other than technical incompetence, for the lights to go out.

But the government does face some hard choices, most of which it ducked in the Energy White Paper earlier this year - a truly flaccid Blairite document.

Does it want the market to work? If so, it must accept the consequences. And how does it intend to meet its emissions reduction target? However much it goes against the grain to say it, those uneconomic and state-supported nuclear power stations do not emit greenhouse gases.

That does not make them popular with environmental activists, but then, when did reality ever count for much with Greenpeace and Friends of the Earth?

If the government wants a significant portion of our power to come from nuclear, it should say so, and set the terms of the market accordingly. Then the rest of the energy supply industry would know where it stood.

Patrick Heren is publisher of The Heren Report on European energy.