Nuclear power as part of the solution for lowering high energy prices

Nuclear power plants also help to reduce greenhouse gas emissions

Beyond the fifth wave of the COVID-19 pandemic, which is so dramatically hitting Spain and other countries, in the past few weeks —and especially during the first two weeks of August— the price of electricity has become one of the main concerns of Spanish citizens. The wholesale market price record has been broken day after day, reaching an average daily value of 117.29 €/MWh. These prices are then transferred to PVPC (Voluntary Price for the Small Consumer) regulated-tariff contracts.

The arguments that are being thrown about to explain this rise —the price has almost tripled in the last year— are basically the increase in the price of natural gas on the international markets and the increase in the price of CO₂ emission rights owing to a reduction in the amount that is allocated free of charge by the competent European authorities to combat climate change. This price increase has led to widespread criticism of the marginalist structure of the Spanish wholesale market.

Combined-cycle power plants, which use natural gas as fuel and have to purchase emission rights to offset their CO₂ emissions, represent the power generation technology that sets the price in the Spanish wholesale electricity market many times during the day, given the lack of input from other technologies —especially wind— whose output is dependent on weather factors and makes their availability highly volatile.

Lower, stable prices thanks to nuclear power

In the face of these price increases, however, the Spanish nuclear fleet could guarantee the long-term fulfillment of all PVPC regulated-tariff contracts,⁽¹⁾ which are currently indexed to the wholesale market price, at a stable price that would be much lower than current prices.

⁽¹⁾ Nuclear power only represents 6.5% of the country’s total installed capacity. Nevertheless, it supplies in a steady, continuous and reliable fashion, all year long, more than 20% of all the electricity produced in a year by the Spanish power system —as it has been doing for the last decade.

In addition, the operation of nuclear power stations does not release any CO₂ or other greenhouse gases into the atmosphere, something that makes nuclear power essential in the fight against climate change. The fact of the matter is that the Spanish nuclear fleet prevents several tens of millions of tons of CO₂ from being released into the atmosphere every year and generates between 30 and 40 percent of all the clean energy used in our country.

Stifling tax burden

Having said that, in spite of the excellent performance of Spanish nuclear power plants, which helps to make the power system reliable without stressing prices or contributing to climate change, nuclear production in Spain has been subjected to a growing, suffocating tax burden in recent years that has significantly increased its cost and makes it unprofitable in the medium term.

If the tax burden on nuclear power —taxes and fees, many of which are redundant— were to be lessened, Spanish stations could help to cover Spanish households’ regulated tariff contracts with an even more competitive price, thereby lessening the negative impact that current astronomical wholesale market prices are having on family economies under the PVPC.

Such lowering of the tax burden would moreover contribute to the economic viability of Spanish plants and hence allow them to continue operating until they reach their orderly closure dates —which were agreed in March 2019 under the auspices of the Ministry for Ecological Transition and the Demographic Challenge— as transitional power generators to facilitate the decarbonization of the Spanish power system.

Bill handicaps nuclear power

However, the truth is that this option —which would allow a price to be obtained for the PVPC tariff that would be much lower than the current one— is not among those being studied by the Government. Much to the contrary, on August 3 the Spanish Government approved for its sending to Congress a bill “whereby action on the remuneration of CO₂ unreleased by the electricity market is taken,” which envisages the introduction of a mechanism for deducting from the income generated by nuclear electricity production a so-called carbon dividend —estimated, according to the information provided during the press conference following the Council of Ministers, to be about €400M per year.

Thus, the operation of some non-emitting, economically competitive technologies, such as nuclear, will once again be penalized. Keeping taxation as high as it is right now, together with the mechanism proposed in the aforementioned bill, will make the operation of Spanish nuclear power plants unsustainable and unfeasible in the near future and will lead to their earlier than expected closure, thus aggravating the current situation of high wholesale market prices and leading to higher CO₂ emissions.

All this would call into question, and make it almost impossible to comply with, the 2021-2030 National Energy and Climate Plan (PNIEC), which was approved by the Spanish Government in March 2021 and whose two main goals —and also of the entire ecological transition strategy— are decarbonizing the Spanish economy by 2050 via a steep reduction in CO₂ emissions so as to meet the objectives set in international agreements in this regard and lowering people’s electricity bills.

This is why it is essential to come up with a mechanism that would stabilize the energy prices that are passed on to the PVPC regulated tariff using nuclear generation as a guarantor and, at the same time, make nuclear power viable so that it can act as a transitional source of energy for achieving decarbonization goals and, consequently, help to curb climate change.