The Government appears to be ready to offer EDF huge subsidies for its proposed Hinkley Point C nuclear plant, but negotiations are currently on hold and not expected to finish until the end of the year. Whether agreement can be reached is seen as a litmus test for the economic viability of nuclear power in Europe. The world is watching Britain “very avidly” as it struggles to secure a commercially viable deal for nuclear energy in an open market.
Secretary of State for Energy, Ed Davey, denies that the Government is offering EDF a blank cheque: “I am not going to sign any deal with EDF unless it is value for money, is affordable and meets the coalition agreement of no public subsidy”. He says “I am determined that the consumer or the taxpayer will not bear the risk of construction over-runs. Nuclear will get no preference in comparison with other low-carbon technologies.”
But nuclear power is being offered much more favourable terms than renewables since nuclear looks like being offered a 35 year contract with premium prices compared with only 15 for renewables, and unlike renewables, the Treasury has offered EDF £10 billion worth of loan guarantees.
If the Government will not underwrite EDF’s construction costs – barring some incredibly high ‘strike’ price – that should be enough to stop the project. There is tremendous uncertainty about how much the plant will cost and how long it will take investors to get their money back. So the City will downgrade any investment that is dependent on hopeful estimates for construction costs. That is why ‘underwriting’ is so important for new nuclear power. It seems the Government has not offered (yet) to guarantee to pay for any construction costs overruns. Barring some national French Government priority being made for Hinkley C (which seems unlikely) investing in the plant looks like a very unattractive prospect unless construction costs are underwritten.
The government had hoped to make a positive announcement before the summer on the strike price. A deal, intended by ministers in London to represent a final offer, was put on the table in June. EDF in Paris, where all the energy company’s decisions are made, failed to respond. Frustrated by the unwillingness of EDF to engage, the Government, which thought an agreement was possible after the last Anglo-French summit in May, has now effectively stepped back and is talking to other possible suppliers.
Nick Butler in the FT complained that:
“We have not been told why the costs of EDF’s ill-starred plant at Flamanville have risen so high, and why Hinkley rather than benefiting from everything learnt there is now projected to cost even more. We have not been told how the project will be financed.”
Meanwhile, Labour MP Alan Whitehead says the new nuclear programme is taking so long to complete that it is in danger of becoming a “museum” piece by the time it is due to come on line in 2020. A lot of the generation issues will have been solved by the time Hinkley Point C starts generating and the UK “will have in theory a lot of wind, demand-side reduction, storage backup and interconnectors – the lights will have either gone out or we will have substantially resolved our supply problems anyway.”
2nd August 2013