EDF is now demanding a double subsidy of a high 'strike price' for electricity generated and 'underwriting' of at least some of the costs of building Hinkley C nuclear power station. EDF is edging towards the outcome that serious nuclear analysts always knew was the only basis for funding nuclear power - by the Government effectively writing a blank cheque for it. Make no mistake, allowing EDF to have state guarantees for the costs of Hinkley C will, on the basis of previous experience, result in the Government having to pay for those guarantees. This means that billions of pounds will be diverted from money available for hospitals, schools etc towards guaranteeing profits for EDF.
In addition it seems that EDF is also demanding a high 'strike price', that is payment for electricity generated, on top of the Government agreeing to 'underwrite' its construction costs. The newspapers (see below) talk of EDF wanting a '10 per cent' return on Hinkley C. That, of course, would only be possible if EDF gets the state 'underwriting' guarantees (for the whole of the investment, not just part of it) because only then would banks and other lenders be willing to lend money to EDF to allow the rate of return to come down from the around 15 per cent that EDF shareholders would expect if the deal was funded wholly off EDF's balance sheet.
Reading between the lines, it seems that EDF is asking for a strike price of at least £110 per MWh PLUS underwriting its construction costs. The newspapers refer to 'part' of the construction costs, but just as EDF has edged the Government towards more and more incentives being pushed in its direction, the guarantees are unlikely to stop at a guarantee for just 'part' of the construction costs.
We have come quite a long road since Government reports announced in 2006 that nuclear power would cost no more than an average of around £40 per MWh. Now, it seems, if it was funded on the same commercial basis as renewable energy schemes, it would cost over £160 per MWh (see earlier blogs on this). 'Underwiting' nuclear power, that is giving it a Government blank cheque so that any shortfall in the ability of the scheme to repay loans would be paid by the Government, might bring the price down towards £100 per MWH (using city analyst Peter Atherton's figure).
The Government would have to swallow a lot of problems if it did agree to EDF's demand. What could it say to offshore wind developers who, according to the Government, are supposed to reduce their costs to £100 per MWh without any 'underwriting'? What could it say to onshore wind developers who are unlikely to be offered more than £80 per MWh without any underwriting (and renewable generators will be on much shorter contracts compared to nuclear power as well).? What could it say to soalr power companies which have gone bust in droves because the Government, far from 'underwiting' their costs, acutally foreshortened the feed-in tariff programme in 2011. What is it going to say to the millions of people shivering in their homes who cannot afford to pay for properly energy efficient households?
This whole sorry saga exposes the total uneconomic nature of nuclear power and the fact that green energy sources (real gree ones, that is, not nuclear) are much more financially competitive than nuclear power.
I can only repeat what I said in an earlier blog:
'Underwriting nuclear risks would be in direct contradiction to what the Conservative Party said in their pre-election energy policy statement in March 2010, called 'Rebuilding Security – Conservative Energy Policy in an Uncertain World'. The Conservatives said: ‘we agree with the nuclear industry that taxpayer and consumer subsidies should not and will not be provided – in particular there must be no public underwriting of construction cost overruns’. Note the statement: 'in particular there must be no public underwriting of construction cost overruns'. Whatever the interpretation off the term 'subsidy', there is not much wriggle-room there! Mr Hayes, which part of the phrase 'there will be no public underwriting of construction cost overruns' don't you understand? See the page 18 of the pdf document at: http://www.conservatives.com/News/News_stories/2010/03/Conservatives_propose_radical_overhaul_of_Britains_energy_policy.aspx - if this (now) embarrassing document is still on the web by the time you get to it!
But it gets worse for the Government's record. Ed Davey, in a moment of clarity, declared on May 22nd this year, just as the Energy Bill was published, that: "There will be no blank cheque for nuclear - unless they are price competitive, nuclear projects will not go ahead." See http://www.bbc.co.uk/news/business-18144412. '
Indeed on the BBC Sunday Politics show Ed Davey appeared to repeat these sentiments when he commented that 'In the past the Government has paid too much for nuclear power'. But will Ed Davey stick to his guns, or will the powerful nuclear industrial/engineering complex steamroller the Government into another disastrous nuclear investment? I bet that Ed Davey will not be steamrollered (partly because the Treasury seems to agree with him), but this prediction itself flies in the face of the immense influence that the nuclear power lobby has in this country.
If EDF does get its way, then the country will have been fooled over the part 7 years. First we heard that nuclear power was so cheap all it needed was a bit of planning support and maybe a carbon floor price. Then we heard that this was not enough. It needed some 'low carbon' incentives, taking money that would otherwise go to renewables, on the assumption that of course 'more cost effective' nuclear power would wipe the floor with renewables in competitive 'auctions' of contracts. Then we heard that, after all, new nuclear build would need higher subsidies than most renewables would actually get. Now we hear that not only will nuclear power require higher 'strike prices' than other renewable energy sources but it will need the state to guarantee payment of its construction costs as well! This is a process that Tom Burke has described as 'salami slicing'.
Is the British public going to be taken for a bunch of complete fools?
If you want to read the sanitised version of EDF's strategy, you can read it as reported in the Times and the telegraph in reports published today below: