The UK Government weakened its bargaining position by dragging its feet on renewables, and is promising to pay for nuclear at exorbitant prices in projects that will not deliver.
by Prof Peter Saunders
Nuclear at all cost to taxpayer
When the UK government published the 2008 White Paper  announcing its intention to commission a new fleet of nuclear reactors, it portrayed nuclear power as an economical way of providing low-carbon electricity. We were highly sceptical of the figures on which this claim was based ( Nuclear Subsidies Largesse by other Names, SiS59) and the terms of the contract that has been agreed with Electricité de France (EDF)  confirm that the project will cost far more than was envisaged in the White Paper. Many of those who supported the decision on the basis of what they read in the White Paper are now having second thoughts.
According to the agreement, EDF will construct two plants at Hinkley Point, a site on the Bristol Channel in the west of England. They say this will cost £16 bn, somewhat more than the £14 bn that was being discussed last year and a great deal more than the £5.6 bn in the White paper ( p61). In return, they will be guaranteed a price of £92.50/MWh in real terms (i.e. corrected for inflation) for 35 years. This is almost double the current wholesale price of electricity. It is estimated that by 2023, EDF will be receiving £121/MWh, which will be higher than the cost of electricity from gas unless the latter goes up by 130% over the next 9 years.
We are told that EDF will cover “a share” of the cost of decommissioning the plant and disposing of the waste when the reactors reach the end of their useful lives. It will also be liable for the first £1bn of damages in the case of an accident; this may sound like a lot, but we can get an idea of the risk the taxpayer is taking on by comparing it with the Fukushima accident. The cleanup alone is now expected to cost $58 bn (£35 bn)  and the total loss could be $250 bn ((£152 bn) or more. EDF will also have a £10bn loan guarantee, which will allow it to borrow at a lower interest rate.
Why so much?
The obvious question, which even advocates of nuclear energy are now asking, is why the strike price is so high. No one seems able to provide an even vaguely plausible answer. In 2008, EDF told its investors it could produce nuclear power at £45/MWh. That may only have been an approximate figure, but they were hardly likely to have underestimated the cost for fear it could be used against them in negotiations. In 2012, the head of EDF, Vincent de Rivaz, announced that he would be asking for no more than £140/MWh. When asked why there had been such a big increase in so short a time, he explained that it was because  “a lot of things have changed: four years inflation, cost of commodities, steel concrete. And it was based on Flamanville.”
Now total inflation was only about 11% over the period and steel and concrete had risen only slightly more than that. And Flamanville is supposed to have cost so much because of the “first of a kind” effect. As the Hinkley C reactors are to be similar in design, they should cost considerably less.
It may be there are good reasons for this astonishing increase, but the electricity companies are not known for their transparency in matters of prices, costs and profits. Recently, they were accused of making excess profits of £4 bn over three years by shifting profits from their retail arms, which are subject to regulation, to their wholesale arms, which are not. The regulator, Ofgem, admitted that it was unable to verify or disprove the claim because they did not have the necessary information . This shows the weakness of the regulatory system and gives further reason to doubt that the government was capable of negotiating effectively with EDF.
Industry can’t afford it and we don’t need it
Jim Ratcliffe, the head of the major chemical company Ineos, says that £92.50 is far too much and UK manufacturers will find it unaffordable. Ineos is a very large consumer of electricity and has recently agreed to buy nuclear power in France at €45 (£38) per MWh . When asked about this, a spokesperson for the World Nuclear Association (WNA) responded that the cost of nuclear energy in the UK was a “complex issue” . That’s not much of an explanation, and if it is the best the WNA can offer, it is difficult to avoid the conclusion that the UK has been taken to the cleaners.
The government certainly seems to have gone out of its way to make itself an easy prey for EDF. It produced a White Paper with unreasonably low cost estimates and a commitment to no subsidy. This reassured many of the critics and made it easy to get parliamentary approval but It drove away all the likely competitors because they could not see how they could make money on those terms. This left EDF as the only bidder, and consequently in a strong position, though its need to redeem its reputation after the failures at Flamanville probably made it much more anxious to get the deal than the UK government realised .
The government has been dragging its feet on energy conservation and renewables, thus making it easier to argue for nuclear and further weakening its position in bargaining with EDF. Yet we can manage without it in the medium and long term  (Green Energies – 100% Renewable by 2050) and in the short term it has nothing to contribute because the earliest the new reactors at Hinkley Point can be producing their 3.2 GW of electricity is 2023. In contrast, the Department of Energy and Climate Change estimates that 11.3 GW of solar photovoltaic could be operating by 2017 . Nigel Williams, the head of systems operations at the National Grid and so the man whose job it is to make sure the lights stay on, has accused the energy companies of scare-mongering .
Paul Dorfman of the Energy Institute at University College London estimates that the deal amounts to a subsidy of between £800m and £1 bn a year for the owners of Hinkley C . The European Commission has started an investigation into the contract which it estimates could amount to a total subsidy of £17 bn . (A subsidy of £1 bn a year for 35 years is naturally worth considerably less than £35 bn paid up front, so the two estimates are closer than they appear at first glance.)
The previous government took the decision to build a new nuclear fleet and the present administration is continuing the policy. In fact, we are told that they are planning to build as many as 50 new reactors, which would mean that the UK would generate almost all its electricity from nuclear at a time when most other countries are reducing their dependence on it.
It is still possible that the deal could be stopped if the European Commission decides that the £92.50 strike price constitutes an illegal subsidy. What seems more likely is that some form of words will be found that will allow the deal to go through. On the other hand, when the excitement at getting its way on nuclear dies down and the government looks at the contract in the cold light of day, they will see what a really bad deal it is.
Nuclear energy is expensive and dangerous ( Lessons of Fukushima and Chernobyl SiS 50), with the continuing crisis at Fukushima threatening to get out of control serving as an immediate stark warning to all  (Fukushima Crisis Goes Global, SiS 61) and we can supply our energy needs without it (, Green Energies – 100% Renewable by 2050). The problem is to convince the UK government of that before it wastes too much of our money and leaves us too far behind the rest of the world.
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