EDF is angling to get the UK Government to commit to pay what could be tens of billions of pounds for cost overruns on the proposed Sizewell C nuclear power project. This is part of the so-called 'Regulated Asset Base' (RAB) formula it wants the Government to adopt to fund the double plant power station. RAB is usually used for purposes where cost overruns occur much less frequently than they do with nuclear power stations. Usually they do not involve any commitment by the Government to pay for cost overruns.
Under this (RAB) system nuclear power is to be given a privileged postion (certainly not afforded to renewable energy plant) whereby its costs are guaranteed to be paid by the electricity consumer before the plant even starts generating any energy. But not only that, EDF wants the Government to effectively guarantee that anything above cost overruns of 30% are borne by the Government (with the electricity consumer or taxpayer footing the bill). The system is claimed to save consumers' money by allowing the project to be financed by the consumer (none of which have been asked of course). In reality, if applied to building new nuclear power plant, it is likely to do exactly the opposite and blow a great hole either in Treasury budgets, electricity consumer pockets, or both.
This means that we will be paying out increasing amounts once the construction period overruns by more than around 20 months. It should be borne in mind that construction of a similar reactor to that planned for Sizewell C (and also Hinkley C), at Flamanville in France, has already taken getting on for 12 years to build, far longer than the original plan to complete in 5 years. Flamanville already has cost overruns of over 200% compared to the original budget.
It is not too difficult to calculate the approximate minimum impact of construction overruns. This is because, on a rule of thumb basis, construction costs are akin to a multiple of the time taken to build them, plus additions to cover the cost of borrowing money to finance costs already incurred. Essentially, you have to employ a team (very large one in this case) of workers to do the job, and the longer you have to hire them the longer you have to carry on paying them.
Let's assume that EDF choose a slightly less implausible time to build the project at Sizewell C project than they did for Flamanville. Say they chose 7 years. In that case (still implausible compared to what they usually take in the West), then it would take less than 2 years of costs overruns before the Government would be expected to start carrying the can for the cost overruns.
It's going to be a very big can. Especially if, as I suspect, that EDF is projecting an implausibly short construction period. I have heard suggestions that Sizewell C's cost are going to be reduced by 25% compared to Hinkley C. How is that going to happen? It's the same design with the same highly specialised materials and parts that do not come off a production line. The only explanation is that they expect Sizewell C to be built in a short time compared to Hinkley C (whose real construction has hardly started). Another stab at doing it in 5 years? You must be joking! If they are planning on 5 years build time then the consumer will start paying for the cost overruns in under 6.5 years after the plant was started to be built.
I've been predicting for a long time that the Government would end up underwriting the costs of building nuclear power plant. It's likely to happen by stealth with Hinkley C anyway as costs mount, but in the case of Sizewell C, EDF seem to be going to get it written into the contract from the start. That could mean the state passing onto the electricity consumer tens of billions of pounds of costs for construction cost overruns.
Reference
https://www.thetimes.co.uk/edition/business/sizewell-budget-meltdown-could-hit-taxpayers-under-edf-proposals-wrjdkdx20
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