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UK government’s big gamble in subsidising new nuclear power

Nuclear subsidies: a gamble on the price of gas, Climate Spectator, 20 May 13 “…..the idea of billion pound subsidies for a new crop of nuclear power stations in a time of austerity sounds outlandish. Is this a sensible use of the public’s money?

We should note that the government is not parting with any cash up front. This is a buy-now, pay-later deal. Money will only flow to the nuclear companies from our bills once they start generating electricity.

The first nuclear plant in the pipeline is Hinkley Point in Somerset, which has received planning consent. The government is currently negotiating a contract with the owner, energy company EDF, to agree a price they can charge when the plant comes online.

The contract terms will be long – perhaps up to 40 years – giving the company revenue certainty, and reducing their capital costs in the face of fluctuating market prices. Yet to be announced, this fixed price may be 70 per cent higher (worth more than £1 billion per year) compared to today’s market prices. But as the plant will not be operational for at least 10 years, the key question is what price power will be a decade from now.

That depends. If the price of gas stays where it is or falls, government will have locked consumers into an expensive energy source for 40 years. But if gas prices rise, electricity prices will also rise, and nuclear energy will subsidise us rather than the other way round. In which case, if the government fails to build new nuclear plants now it will have locked out consumers from a relatively cheap source of future power.

This is the nature of the commercial risks associated with nuclear, and why companies will not build new plants without some price assurance from government. By fixing a price, the government transfers that risk to the consumer. Depending on the terms of the contract agreed with EDF, the public may also share the risk of major cost overruns, and of dealing with nuclear waste.

Britain’s existing nuclear plants are also operated by EDF, which bought them from the government in 2009 for £12.5 billion in a deal that left the costs of cleaning up with the government. This is going to be expensive: the decommissioning of the huge nuclear reprocessing plant at Sellafield, Cumbria, is estimated at more than £67 billion, a bill that costs the government £2.3 billion per year through the annual budget of the Nuclear Decommissioning Authority. EDF pays nothing into this fund as the “polluter pays” principle says they should, so this represents a hefty subsidy. But the government would never have received such an attractive sale price if the taxpayer had not been left to pick up the tab.

……Judged on purely commercial grounds, the nuclear decision is a large bet on the price of gas (not to mention nuclear safety)


May 20, 2013 - Posted by | politics, UK

1 Comment »

  1. […] UK government’s big gamble in subsidising new nuclear power ( […]

    Pingback by Bradwell-on-Sea identified as potential site to dump radioactive waste | Family Survival Protocol - Microcosm News | June 17, 2013 | Reply

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