Michael Harrison's Outlook: Green is the colour, nuclear is the name

British Energy may have lived to fight another day. But the more interesting question is whether there is a long-term future for nuclear energy in this country. As we saw this week, the state-financed rescue of the company that dare not speak its name has turned into a gravy train for professional advisers and managers alike - the former have already picked up £104m for saving it from the scrap heap and the latter stand to net £30m if they make a success of the business over the next three years. But what does that mean for energy policy over the next 30 years and will atomic power have a role to play?

British Energy may have lived to fight another day. But the more interesting question is whether there is a long-term future for nuclear energy in this country. As we saw this week, the state-financed rescue of the company that dare not speak its name has turned into a gravy train for professional advisers and managers alike ­ the former have already picked up £104m for saving it from the scrap heap and the latter stand to net £30m if they make a success of the business over the next three years. But what does that mean for energy policy over the next 30 years and will atomic power have a role to play?

Over the next six months, at least, the Government's energy policy is clear ­ make sure the lights do not go out between now and the next election. It would, we are told, take a Siberian winter of the type Britain experiences only once in every 50 years to put a serious squeeze on supplies. Even then, we are assured, "market mechanisms" would step in to keep the lights on. Industry would find it more profitable to stop production and sell its surplus power back to the grid and even the most uneconomic generating plants would come out of mothballs as the wholesale price of electricity went through the roof. In short, the market would ensure there was enough gas to meet domestic demand for heating and enough electricity to avoid blackouts.

There are some sceptics, including a few who run the country's gas terminals, who doubt that the market will perform quite so perfectly. But even if it were to, and the UK avoids any serious power shortages this winter and next, by which time more gas import capacity will have come on stream, are we right to be as sanguine about the longer term?

There are two issues which continue to dominate UK energy policy and nuclear power, for better or worse, sits squarely in the middle of both. One is security of supply. The other is diversity of supply and the fuel mix Britain will need to meet its environmental goal of a 60 per cent cut in carbon emissions by 2060.

As far as security of supply is concerned, the predictions are coming true more quickly than anyone expected. In its Energy White Paper last year the Government calculated that Britain would become a net gas importer by 2006. In fact, we have already reached that point. Meanwhile, much of the UK's economically viable deep mined coal will have been exhausted by 2010, by which time European legislation governing sulphur emissions may have forced the closure of most of the country's coal-fired stations anyway.

Should this worry us? The optimists say no, arguing that much of the imported gas will come from Norway, a country with such affection for Britain that it still sends us a Christmas tree each year as a thank you for Allied support in the Second World War. The pessimists say yes, pointing out that the rest of the gas will need to be imported from places such as North Africa, the Middle East, Latin America and Russia.

So, as far as security of supply is concerned, the argument is balanced. The case for nuclear power on environmental grounds is more compelling. Leaving aside for one moment the issue of what to do with the radioactive waste it produces, nuclear is the greenest of fuels. It currently produces nearly a quarter on the UK's electricity but not a single tonne of carbon dioxide or sulphur emissions. But, twenty years from now, its contribution to energy production will have dwindled to 2 per cent, supposing no new nuclear plants are built.

The Government is relying upon renewable energy, mainly in the form of onshore and offshore wind farms, to fill the void in generation and spearhead the fight against global warming. It has also made some highly ambitious assumptions about the contribution that energy efficiency could make to reducing emissions. But few energy experts, including most of those building wind farms, believe the target will be met of generating 20 per cent of our electricity from renewable sources by 2020. As for energy efficiency, it is hamstrung by the absence of fiscal incentives to make energy saving attractive to domestic consumers. The energy industry continues to bang on Gordon Brown's door, but so far to no effect.

So what future for nuclear? Well, the near death of British Energy did it no favours, exposing an industry which was uneconomic in its own right and only exists today because the taxpayer has relieved it of some £5bn in liabilities.

As Patricia Hewitt, the anti-nuclear Trade and Industry Secretary, re-iterated only a month ago, there is not exactly a queue of developers knocking on her door for permission to build new nuclear reactors. For that to change, three things will have to happen. First, nuclear will have to prove its profitability. If the new management of British Energy get even close to earning their £30m bonus then they will have demonstrated that. To trigger the maximum payout, the company's operating profits would need to increase eight-fold to £1.6bn.

Second, some mechanism will need to be established which sends out long-term price signals to the market. This will enable developers to build new plant in the knowledge that they will be able to earn an economic return for baseload power such as nuclear over the long-term.

Third, the price of other fuels will need to reflect their own back-end costs so that nuclear is not disadvantaged by its legacy costs. Back in the days when British Energy was state-owned, we paid for these through something called the nuclear levy. So what about a gas levy or a coal levy?

Where there is a will, there is a way. Left to its own devices, wind power would be too expensive to be attractive, which is why the Government has a renewables obligation requiring electricity suppliers to meet 10 per cent of their needs from green energy. It is a levy in all but name. Likewise, if coal is to enjoy a renaissance in the UK, it will require some serious investment in expensive clean coal technology, which in turn means some fiscal instrument ­ call it a coal levy or a fossil obligation ­ to guarantee it a market.

So don't discount the idea of another energy white paper after Tony Blair (a nuclear fan) has won the next election, putting atomic power back on the agenda.

The thing he and the nuclear lobby will then have to grip is the thorny issue of what to do with the waste nuclear fission produces. Reprocessing is an economic nonsense. Moreover, it leaves more waste behind in a more concentrated form, with all the proliferation issues that raises. On the other hand, there is no agreed strategy for waste storage, much less an agreed location for storing it. During the course of an energy debate Arthur Scargill once produced a lump of coal from his pocket and volunteered to eat it if the nuclear executive sat opposite did likewise with a piece of plutonium. Crack that, and nuclear could have a future once more.

m.harrison@independent.co.uk