nuclear-news

Hinkley Point’s first impact will be to add to consumers’ bills

http://www.theguardian.com/business/blog/2013/oct/18/hinkley-point-nuclear-power-plant-consumer-bills

…The UK would be agreeing to buy electricity from Hinkley Point at £93 per megawatt hour – roughly twice the current market rate….

 

The deal is still to be signed, but already some extraordinary claims are being made about Hinkley Point in Somerset, which will be the first nuclear plant to be built in the UK since 1995.

Here’s chancellor George Osborne‘s take: “If it wasn’t Chinese investment or French investment, it would have to be the British taxpayer. I would rather British taxpayers were spending their money on our schools and hospitals and those things, and let’s get the rest of the world investing in our energy.”

Put like that, you might assume UK taxpayers have hit the jackpot, that EDF of France and China General Nuclear Power Corporation (CGNPC) will bear all the financial risks and that energy bills in the UK are bound to fall sometime around 2020 as cheap nuclear energy comes on stream.

Forget it. The UK will be agreeing to buy electricity from Hinkley Point for 35-40 years at £93 per megawatt hour or thereabouts, according to the whisper from Westminster.

That is roughly twice the current market rate for electricity, and far in excess of the £40 per megawatt hour that was airily waved around by the Department of Energy only half a decade ago.

Nuclear power, it seems, can only be bought at a cost roughly equivalent to on-shore wind, complete with its subsidies to landowners. Maybe that is the price that has to be paid for secure low-carbon supplies, but at current energy prices, the first impact of Hinkley Point will be to add to consumers’ bills, just as wind does today.

“In the long term,” the chancellor continued, new nuclear should lead to “lower and more stable energy bills.”

The key phrase there is “long term”. The claim rests on the assumption that the costs of other sources of energy will continue to rise and make £93 appear a bargain sometime in the future. That assumption may or may not prove correct – but coming from a government that supposedly thinks fracking will revolutionise the energy market, it’s a strange argument to hear.

But is £93 the real cost anyway? The devil will be in the detail of this contract – specifically, in the indexation formula for the strike price. If Hinkley Point’s entire output is tied to the rate of inflation for 40 years, we could be staring at a truly astronomical cost by the end of the contract.

“The government surely can’t be that dumb,” comments one City analyst. One assumes not. But what proportion of Hinkley Point’s operating costs and uranium purchases will inflate automatically? The answer is critical to any assessment of value for money.

So, too, is the size of the loan guarantees given to EDF and the Chinese. If they amount to 70% of the debt raised to fund the £14bn construction costs of two reactors, the UK taxpayer is firmly on the hook. And, given that EDF’s recent construction experience in France is massive cost over-runs, is the UK backstopping that risk as well?

The Department of Energy and Climate Change refuses to comment until the talks are completed, but Steve Thomas, professor of energy policy at the University of Greenwich, has a blunt assessment of where negotiating power lies: EDF has the government “over a barrel” and the contract may be an “absolute disaster” for taxpayers.

Strictly speaking, judgment must be reserved until the contract is signed and published. But Osborne’s Chinese spin should make us nervous.

How is it meant to be good news that, among all the possible sources of capital to partner EDF at Hinkley Point, we have ended up with a company controlled by the Chinese Communist party?

Remember the history here. Centrica, the UK’s supposed energy champion, dropped out of the EDF-led consortium, preferring to take a £200m hit than continue down a nuclear path where the costs and risks only ever seem to increase.

In the face of homegrown scepticism, guarantees from the UK taxpayer have now persuaded Beijing to climb aboard. This does not sound like a triumph in the making. It sounds instead like the latest instalment in the 30-year saga of the UK’s shambolic and short-termist energy policy.

October 19, 2013 - Posted by arclight2011part2 | Uncategorized