Saturday, 14 April 2012


The key thing is to try and ensure nuclear does not get given a blank cheque on electricity consumers’ behalf – and to make sure that there is transparency on such a deal

Nuclear power stations (NPSs) will only be built in the UK if their costs are underwritten by Government. In practice this will most likely mean that Treasury accedes to pressure from EDF etc that electricity consumers will pay for any cost overruns in building nuclear power plant (costs including mounting interest charges on debt).

Despite the existence, in the proposed Energy Bill, of ‘strike price’ contracts for nuclear power (that will give nuclear power new subsidy income streams paid for by electricity consumers) pension funds and banks will not fund nuclear power without a government promise to pay any cost-overruns. This is because of the very great uncertainty about the costs of building NPSs, costs which escalate very quickly in the case of NPSs because of the very long construction times and the interest charges which accumulate (often such charges are misleadingly left out of descriptions of NPS costs). The uncertainties have been greatly exacerbated because of the problems with the Finnish (Olkiluoto) and French (Flamanville) European Pressurised Reactor (EPR) projects.

Companies such as EDF would be very reluctant to finance the plant from their own funds because this would lead them open to potential downgrades by credit rating agencies leading to falls in share prices and increases in borrowing costs. Hence they want guarantees underwriting the investments from Government. In the cases of Flamanville and Okiluoto such guarantees were provided, in effect by the French Government, since EDF (was) nationalized – now it is part-privatised and open to part liberalization measures which prevent further nuclear plant being built. Okiluoto was only built because AREVA, the French state owned nuclear construction company gave financial guarantees to the Finnish developers TVO to pay for cost overruns – indeed AREVA have had to pay a lot of money for cost overruns and this has resulted in AREVA itself suffering financial problems. It is possible in theory to have a similar deal whereby the French state effectively pays for a large part of British nuclear construction costs, but maybe AREVA are not in a position to carry on doing this!

Hence it comes down to the Treasury, who are reluctant to give ‘blank cheques’ on behalf of electricity consumers  (this is the phrase that should be used), because, apart from anything else, the renewables lobby would also ask for similar consideration – and the Treasury are imposing some strict funding envelopes on renewable development.

So the key thing is to try and ensure nuclear does not get given a blank cheque on electricity consumers’ behalf – and to make sure that there is transparency on such a deal. The nuclear lobby would prefer such an arrangement to be made in secret, cloaked by commercial confidentiality, although these days this is much more difficult to achieve than it used to be even in the early 1990s when the ‘non-fossil levy’ was used to pay for Sizewell B.

We need real feed-in tariffs for renewable energy (note , not the confusing 'contracts for difference' on offer and tendering etc), not blank cheques for nuclear!