Keeping on the northern lights

Sweden’s tax cut provides a rare bit of cheer for the nuclear industry

Jun 18th 2016 | From the print edition, Timekeeper, http://www.economist.com/news/business/21700678-swedens-tax-cut-provides-rare-bit-cheer-nuclear-industry-keeping-northern?fsrc=scn/tw/te/pe/ed/keepingonthenorthernlights

An unusual glow

THE list of candidates for the most beleaguered part of Europe’s nuclear-power industry is long. But since last year Sweden, which generates about 40% of its electricity through nuclear energy, has been a strong contender. A tax increased to punitive levels in 2015 by the anti-nuclear Green Party hit its operators so hard that they threatened to close all ten of the country’s plants unless it was scrapped. On June 10th the government, including the Greens, caved in and threw them a lifeline. It has promised to phase out the tax from next year and will allowed operators to replace ageing reactors with new ones.

This was a rare piece of good news for an industry that looks like it is on its last legs in much of western Europe. Germany is decommissioning all of its reactors and France is cutting the share of nuclear in the energy mix to half, from 75%, by 2025. The country’s main power provider, Electricité de France (EDF), is under fire for the shortcomings of the as-yet-unfinished European Pressurised Reactors (EPRs) under construction in Finland and France. Its proposed EPR scheme at Hinkley Point in Britain has become a political embarrassment on both sides of the Channel. Unsurprisingly no one trumpeted the news from Sweden more loudly than Jean-Bernard Lévy, EDF’s chairman. It will not pull the nuclear industry out the mire, however.

The immediate beneficiaries are Sweden’s three nuclear-energy providers, Vattenfall, a state-owned utility, Uniper, carved out of Germany’s Eon, and Fortum, a Finnish utility. The so-called capacity tax on nuclear installations cost the equivalent of about €7 ($7.90) per megawatt hour, around a third of current wholesale electricity prices in the region. Fitch, a ratings agency, said the tax made Swedish nuclear plants unprofitable at current prices.

Despite their losses, operators still needed to make big investments in upgrading the cooling systems of their nuclear-power plants by 2020, ordered after Japan’s Fukushima disaster in 2011. Last year they shocked the country by announcing the closure of four of the ten plants in operation because they could not afford to keep them running. It sent a message, says Roland Vetter of CF Partners, an investment firm, that unless operators were spared the tax, baseload electricity supply in Sweden was in jeopardy. The country generates the rest of its power from hydro schemes and renewables, which are subject to weather conditions. “In the short run it was all about keeping the lights on,” he says.

Whether it actually leads to the construction of new power plants is another matter. The agreement to support the nuclear operators included a pledge to generate all electricity from renewable sources (which excludes nuclear) by 2040. That may have helped win over the Greens, but it is unlikely to generate enthusiasm for building new plants, not least because renewables will continue to be subsidised and the bigger their role in the energy mix, the more they suppress wholesale prices.

On June 15th Vattenfall announced that it was upgrading safety features on three reactors at its Forsmark plant following the tax cut, enabling them to continue producing electricity until the 2040s. Uniper says it has no plans to build new plants. “No investor would risk private money on building new nuclear today,” a spokesman says. “But who knows about the future.”

In fact there are few places in the rich world where there is an appetite to build nuclear-power plants. Even in Britain, which is offering a huge subsidy to EDF, the French firm is unable to commit to going ahead with Hinkley Point.

It may be different in the developing world. This month India reaffirmed a decision, taken in 2013, to buy six nuclear-power plants from Westinghouse, owned by Japan’s Toshiba, after talks between India’s prime minister, Narendra Modi, and Barack Obama. But in reality the deal remains stuck, as long as it remains unclear whether Westinghouse (or any other supplier) would have to accept liability in case of a nuclear accident. Nowhere is nuclear a particularly cheap and easy option.