UK nuclear power plant contract: £80bn deal
Political parties and industry groups welcome low-carbon project as academics and campaigners question cost and waste
- Cameron hails nuclear power plant deal
- Interactive: how nuclear power is growing around the world
- Geroge Monbiot: farce will haunt Britain for decades
- Editorial: the Foreign Finance Initiative
- Damian Carrington: a truly terrible deal
- Simon Jenkins: the unpopular light in the dark
-
Scottish Power to pay £8.5m for misleading customersPolitical parties and industry groups welcome low-carbon project as academics and campaigners question cost and waste
- The Guardian,
David Cameron delivers
a speech to workers at Hinkley Point B power station, next to what will
be the site of the UK's next nuclear power station. Photograph: Tim
Ireland/PA
The British energy secretary, Ed Davey,
has signed the first new nuclear contract with French state-backed
utility firm EDF, admitting only a clairvoyant could know the true cost
to the taxpayer of the 35-year contract because of the uncertainty of
future energy prices.
Energy academics said on Monday that the deal was a gamble, but estimated the cost would be at least £80bn over the life of the two new reactors to be built in Somerset, or roughly £3.5m a day for each reactor at current rates. The cost will depend on how energy prices move over the next 30 years.
Ministers made it clear that future governments would be locked into the contract, set to run until 2058, or face large penalties to compensate EDF. The Treasury has also been forced to offer loan guarantees to underwrite the finance for the investment, which is being undertaken by a consortium of French and Chinese investors.
The contract – which was signed as npower became the third major energy supplier to announce inflation-busting price rises – attracted strong criticism from some environmental groups, who said the price was excessive and the issue of waste unresolved.
But industry groups and the front benches of all three political parties welcomed the deal as providing low-carbon power, belated investment certainty and up to 25,000 jobs. David Cameron said the deal kick-started a new generation of energy investment, a point likely to be underlined on Tuesday when Danny Alexander, the chief secretary to the Treasury, announces a raft of smaller energy infrastructure investments.
Davey said consumers would pay £92.50 per megawatt hour once electricity was generated from the two reactors at Hinkley Point, falling to £89.50 if another contract is signed for a site at Sizewell. This "strike price" will rise in line with inflation, and will be paid for 35 years after its building, subject to periodic reviews to scrutinise wholesale energy prices.
Davey said the money to be paid to EDF – twice the current wholesale price of electricity – represented fair value.
The coaliton agreement signed in 2010 opposed providing nuclear industry with any public subsidy, a position reaffirmed by the Liberal Democrats at their conference this autumn. The conference also ended the party's opposition in principle to nuclear power.
Davey effectively redefined the coalition's "no subsidy" policy at a press conference: "Our policy is that [we will] not provide a public subsidy unless similar support [is given] for other suppliers of low-carbon generation. Nuclear is getting no special favours." Renewable energy is also receiving a larger subsidy, albeit for a shorter period. Davey argued that the consumer, not the taxpayer, would pick up the tab.
David Boyle, a Lib Dem adviser to Nick Clegg, said: "Everyone knows that nuclear energy would be impossible without some kind of guarantee, and I seriously doubt whether EDF will ever make money even on that one. But that was not what we promised ourselves, let alone anyone else. The party's embarrassing new policy repeats the same glib non-position – no nuclear subsidies – when that is precisely what is now being agreed."
Insisting he had struck a good deal, Davey said EDF had been forced to accept the costs of decommissioning nuclear waste in the strike price, and if the plant was constructed for less than the projected costs, the taxpayer and EDF would share the savings. He said that between now and 2023, EDF and its partners, including Chinese state-owned firms, would invest £16bn in the UK. The companies expect to make at least a 10% return on their investment.
Projects to build new reactors in France, Finland and elsewhere have run into delays and cost increases. Robert Gross, of Imperial College, told the Guardian: "Reactors have been built on time and in budget in some parts of the world but recent experience in Europe is not encouraging. What we do not yet know is whether [nuclear] will turn out to be a low-cost, low-carbon option. You could say that the UK government is helping the world find out."
Davey rejected this, saying other countries such as France, Finland and China, were also pursuing nuclear options. He said EDF and its partners had a vested interest in completing the project on time, because they would not be paid until they started generating electricity, and that they would carry any cost overruns. Energy consumers would pay £77 less a year by 2030, because of the nuclear investment.
John Sauven, executive director of Greenpeace UK, said: "Hinkley C fails every test – economic, consumer and environmental. It will lock a generation of consumers into higher energy bills via a strike price that's nearly double the current price of electricity, and it will distort energy policy by displacing newer, cleaner technologies that are dropping dramatically in price."
Nina Skorupska, chief executive of the Renewable Energy Association, said the nuclear deal would not solve the short-term problem of keeping the lights on as current nuclear and many coal-fired power stations were expected to shut down in the next few years, long before Hinkley C started operating.
"[It] is a major development for the UK energy mix, but does nothing to address the looming capacity crunch. Hinkley will still be a construction site when old coal and nuclear capacity is shut down," she said.
John Cridland, director general of the CBI, said: "New nuclear plants must be a fundamental feature of our future energy landscape. This investment will help mitigate the impact of increasing costs. Energy prices are going to have to go up to replace ageing infrastructure and meet climate targets unless we build new nuclear as part of a diverse energy mix."
Henri Proglio, group chairman of EDF, was scathing of energy policy under previous governments. "One of the most tragic aspects of the past few years has been the way you have approached the debate on energy policy," he said.
Energy academics said on Monday that the deal was a gamble, but estimated the cost would be at least £80bn over the life of the two new reactors to be built in Somerset, or roughly £3.5m a day for each reactor at current rates. The cost will depend on how energy prices move over the next 30 years.
Ministers made it clear that future governments would be locked into the contract, set to run until 2058, or face large penalties to compensate EDF. The Treasury has also been forced to offer loan guarantees to underwrite the finance for the investment, which is being undertaken by a consortium of French and Chinese investors.
The contract – which was signed as npower became the third major energy supplier to announce inflation-busting price rises – attracted strong criticism from some environmental groups, who said the price was excessive and the issue of waste unresolved.
But industry groups and the front benches of all three political parties welcomed the deal as providing low-carbon power, belated investment certainty and up to 25,000 jobs. David Cameron said the deal kick-started a new generation of energy investment, a point likely to be underlined on Tuesday when Danny Alexander, the chief secretary to the Treasury, announces a raft of smaller energy infrastructure investments.
Davey said consumers would pay £92.50 per megawatt hour once electricity was generated from the two reactors at Hinkley Point, falling to £89.50 if another contract is signed for a site at Sizewell. This "strike price" will rise in line with inflation, and will be paid for 35 years after its building, subject to periodic reviews to scrutinise wholesale energy prices.
Davey said the money to be paid to EDF – twice the current wholesale price of electricity – represented fair value.
The coaliton agreement signed in 2010 opposed providing nuclear industry with any public subsidy, a position reaffirmed by the Liberal Democrats at their conference this autumn. The conference also ended the party's opposition in principle to nuclear power.
Davey effectively redefined the coalition's "no subsidy" policy at a press conference: "Our policy is that [we will] not provide a public subsidy unless similar support [is given] for other suppliers of low-carbon generation. Nuclear is getting no special favours." Renewable energy is also receiving a larger subsidy, albeit for a shorter period. Davey argued that the consumer, not the taxpayer, would pick up the tab.
David Boyle, a Lib Dem adviser to Nick Clegg, said: "Everyone knows that nuclear energy would be impossible without some kind of guarantee, and I seriously doubt whether EDF will ever make money even on that one. But that was not what we promised ourselves, let alone anyone else. The party's embarrassing new policy repeats the same glib non-position – no nuclear subsidies – when that is precisely what is now being agreed."
Insisting he had struck a good deal, Davey said EDF had been forced to accept the costs of decommissioning nuclear waste in the strike price, and if the plant was constructed for less than the projected costs, the taxpayer and EDF would share the savings. He said that between now and 2023, EDF and its partners, including Chinese state-owned firms, would invest £16bn in the UK. The companies expect to make at least a 10% return on their investment.
However,
the number and quality of UK jobs at the site remains in doubt. Vincent
de Rivaz, chief executive of EDF in the UK, made it clear that only up
to 57% of the 25,000 jobs in the construction phase could go to British
workers. Hinkley Point C will come onstream in 2023 and will be the UK's
first new nuclear power station since 1995.
Antony
Froggatt, from the Chatham House thinktank, said EDF's costs projection
had already increased markedly. "In 2006, its submission to the
government's energy review stated [the type of reactor to be used, a
European pressurised water reactor] would cost £28.80 per megawatt-hour
in 2013 values," he said. "This more than threefold increase [to
£92.50], over eight years, puts the cost of nuclear electricity at about
double the current market rate – higher than that produced by both gas
and coal-fired power stations, and more costly than many renewable
energy options."Projects to build new reactors in France, Finland and elsewhere have run into delays and cost increases. Robert Gross, of Imperial College, told the Guardian: "Reactors have been built on time and in budget in some parts of the world but recent experience in Europe is not encouraging. What we do not yet know is whether [nuclear] will turn out to be a low-cost, low-carbon option. You could say that the UK government is helping the world find out."
Davey rejected this, saying other countries such as France, Finland and China, were also pursuing nuclear options. He said EDF and its partners had a vested interest in completing the project on time, because they would not be paid until they started generating electricity, and that they would carry any cost overruns. Energy consumers would pay £77 less a year by 2030, because of the nuclear investment.
John Sauven, executive director of Greenpeace UK, said: "Hinkley C fails every test – economic, consumer and environmental. It will lock a generation of consumers into higher energy bills via a strike price that's nearly double the current price of electricity, and it will distort energy policy by displacing newer, cleaner technologies that are dropping dramatically in price."
Nina Skorupska, chief executive of the Renewable Energy Association, said the nuclear deal would not solve the short-term problem of keeping the lights on as current nuclear and many coal-fired power stations were expected to shut down in the next few years, long before Hinkley C started operating.
"[It] is a major development for the UK energy mix, but does nothing to address the looming capacity crunch. Hinkley will still be a construction site when old coal and nuclear capacity is shut down," she said.
John Cridland, director general of the CBI, said: "New nuclear plants must be a fundamental feature of our future energy landscape. This investment will help mitigate the impact of increasing costs. Energy prices are going to have to go up to replace ageing infrastructure and meet climate targets unless we build new nuclear as part of a diverse energy mix."
Henri Proglio, group chairman of EDF, was scathing of energy policy under previous governments. "One of the most tragic aspects of the past few years has been the way you have approached the debate on energy policy," he said.
- copy http://www.theguardian.com
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