In the news today was a proposal to make companies operating nuclear energy in the UK liable for clean-up costs of up to £1.01 billon in the event of a accident, up from only £140 million at the moment. Lib Dem Energy and Climate Change Secretary Chris Huhne also proposes to allow more types of claim to be made in such circumstances. It is absolutely right for the government to make this change and stop distorting the market as it does now.

Huhne: In favour of building more nuclear plants, but raising the insurance costs

I will come clean here: I am a fence-sitter on the issue of nuclear power. The more I look into it the more complicated and unclear it becomes. I tend to conclude that it is not a power source to be dismissed completely, but mostly is not worth the cost. This may, however, change with technological improvements.

It is, however, unhelpful for nuclear power to be given an unfair market advantage. When its maximum liability level is low it has a huge implicit subsidy: government is then effectively agreeing to clear up the mess from any nuclear disaster. If nuclear energy becomes a bigger part of the UK’s (or the world’s) energy supply because its real costs are being covered by the government, then that is due to a misjudgement on the part of policymakers.

This is not to say all energy subsidies should be opposed, quite the opposite. The cards should be stacked heavily in favour of giving renewable energy an advantage, so the technology is developed swiftly. Subsidies to renewable energy sources are essential to develop areas like wind and solar power to a competitive market position. At present they have an unfair disadvantage simply because however good the fundamental ideas are, they haven’t had the years of development that fossil fuel and nuclear industries have. Adopting the most effective and efficient renewable generation is key to developing a sustainable economy in the long-term.

There is another key way of making the energy market better reflect energy production costs, and that is smart grids. At present less predictable sources of energy like wind are effectively discriminated against by a grid that is designed to move energy in a fairly unsubtle way. High-quality smart grids can allow power companies to monitor the electricity going through all of its power lines in real-time and have much greater control of where the power goes. Electricity inefficiency costs the world dearly: according to IBM the world’s current grids “lose enough electricity annually to power India, Germany and Canada for an entire year” This control makes the reliability challenges of renewable energy much easier to overcome: if there isn’t enough power generation in one area, it can be moved from elsewhere. Smart grids would still have benefits for other energy companies, but would level the playing field still further.