Hinkley C could cost consumers £50 billion under proposed deal

Electricity consumers are likely to pay around £50 billion extra under the deal proposed by EDF in their negotiations with the Government for a contract to build Hinkley C. EDF has revealed that it is asking for a 40 year contract to pay premium prices. See http://www.utilityweek.co.uk/news/news_story.asp?id=198148&title=EDF+aims+to+strike+CfD+deal+in+next+three+months

This 40 year contract length means that consumers will be paying the premium under the 'contract for differences' (CfD) arrangements for more than twice as long compared to what the Government wants to pay developers of renewable energy schemes (only 15 years).

When this 40 year contract length is combined with the premium that EDF is demanding, the amount that consumers would have to pay EDF comes to staggeringly high amounts. If the 3.2 GWe Hinkley C reactor works well with a 90 per cent capacity factor, and EDF is given a 'strike price' of £100 per MWh, then based on todays wholesale electricity prices (around £50 per MWh), this £50 per MWh premium works out at costing consumers around £50 billion extra their normal bills over 40 years.

One can see why EDF is asking for such a long contract - this is because at a contract length of a rather shorter duration (say 25 years) the asking 'strike price' comes out as a ridiculously high figure (hence the reports of £165 per MWh without underwriting). Of course, under EDF's proposed deal the consumer still ends up paying a ridiculously high amount, but it is just strung out over a rather longer period. The 'overnight' cost of Hinkely C is said to be £14 billion. But in reality nuclear power stations cost an awful lot more than the 'overnight' costs.

However,things do not end here. As commented in the previous blog post, EDF wants underwriting as well, so that the taxpayer is highley likely to end up paying for at least part of the plant - especially given the large risks of costs overruns which will be borne directly by the taxpayer. Given EDF 'salami slicing' negotiations strategy one would assume that the Government will end up being asked to underwrite the whole of the project sooner or later (renewable energy developers do not get their costs 'underwritten').

Hence if the Government agreed to the terms that may be demanded by EDF we would have a truly bizarre outcome that the Government will be effectively guaranteeing profits for EDF regardless of whether much generation actually occurs in practice.

Instead, of course, a number of other options exist to supply the electricity at a small fraction of this premium, and renewables will certainly be a lot cheaper in 10, 20, 30 years time. Onshore wind, solar power and offshore wind are cheaper now than nuclear power - but their costs are falling (in sharp contrast to nuclear power) but the consumer will be locked into paying collosal premiums for Hinkley C for 40 years. Onshore wind is likely to be offered no more than £80 per MWh for example, although for a contract no longer than 15 or 20 years at the most.

Note: Five days after this posting the press published stories on this, see:

http://www.guardian.co.uk/environment/2013/feb/18/nuclear-power-ministers-reactor and also:



http://www.telegraph.co.uk/news/uknews/9879257/Government-drawing-up-ludicrous-40-year-contracts-to-persuade-power-companies-to-go-nuclear.html

Of course, the reactors would not come online until the 2020s which mean that the contracts would actually be running well into the 2060s (not just 2050 as implied in the press coverage).......

......................Remember, if you looked at this blog post on the same day it was loaded you were well ahead of the news!