Nuclear tax break 'would kill green levy'

The Government has been warned that exempting the beleaguered nuclear electricity generator British Energy from the Climate Change Levy would, in effect, spell the end of the controversial tax.

Rival electricity producers have told ministers that if British Energy is allowed to escape the levy then 85 per cent of all the industrial and commercial users who currently pay the tax at the full rate will be able to get their electricity from nuclear generating stations.

British Energy says exemption from the levy would save it £100m a year, helping it survive the financial crisis which now threatens to force the company into administration.

But rival producers say it would destroy the market for non-nuclear generators and hand British Energy a captive industrial customer base equivalent in volume terms to 18 million domestic consumers.

It would also strike a blow at the environmental gains the levy is supposed to produce by disadvantaging renewable energy and combined heat and power producers, they say.

Coal and gas-fired electricity producers would, in effect, be frozen out of much of the industrial market because they would still have to charge customers an additional 4p per unit to cover the levy on top of the 16p a unit market price.

TXU Europe, one of the generators which would be hit by an exemption from the levy for nuclear, has written twice to Patricia Hewitt, the Secretary of State for Trade and Industry, setting out its concerns. TXU is expected to meet the Government next week in advance of next Friday's deadline for pulling the plug on British Energy or rolling over an emergency £410m loan facility.

Paul Marsh, the chief operating officer of TXU Europe, said all generators, not just British Energy, were suffering from low wholesale prices. "Anything which further destabilises the electricity industry by reducing one player's costs at the expense of everyone else is only going to exacerbate the situation," Mr Marsh said.

Industrial and commercial customers paying the levy at the full rate account for about 120 terawatt hours of electricity output. Of this, about 100 terawatt hours could be met from nuclear – 70 TWh from British Energy's eight stations and the remainder from British Nuclear Fuels' Magnox reactors and the cross-Channel interconnector which supplies French nuclear power.

The Chancellor Gordon Brown is vigorously opposed to exempting British Energy from the levy and now the full ramifications of such a move are beginning to sink in too among DTI ministers.

Brian Wilson, the Energy Minister, this week played down fears the Government had decided to push British Energy into insolvency stressing that no decisions had been made.