What's a fair nuclear price?

EDF sign at a nuclear plant in France

Whenever I ask government officials and ministers why they are taking so long to reach a deal with EDF on building the promised vast new nuclear plant at Hinkley Point in Somerset, they say "40 years" - and turn a whiter shade of pale.

What they mean is that the French energy giant says it needs a commitment of between 35 and 40 years on the price to be paid by consumers for the power generated by Hinkley, before it presses the button on £14bn of expenditure for the two new reactors.

For officials in particular, who in theory could still be employed by taxpayers in 10 years or so, when vast amounts of electricity would start to emanate from the plant, it is a pretty scary idea that they might be committing all of us to pay more for that electricity than is justified - and not just for a few weeks or months, but till 2060.

And what they then point out is that the price originally demanded by EDF of £100 per megawatt hour was 19% higher than another source of low-carbon power - onshore wind turbines - where there is a need to guarantee the tariff for "just" 15 years.

So the gap between the price the government is prepared to offer and what EDF desires has been huge, some 25% initially, and explains why these negotiations have been running many weeks and months longer than both sides hoped and wanted.

Where are we now?

Well the gap has narrowed, but not enough. And there is a risk, although I can't scientifically quantify it, that the whole thing will collapse.

Start Quote

The chancellor doesn't have an ideological problem with nuclear, but he won't do a deal unless the price is right”

End Quote Government official

The prime minister is a bit concerned about the political fallout (no pun intended) if the project were scrapped.

Doubts would be exacerbated about the government's ability and determination to deliver on important job-creating and wealth-creating infrastructure projects. And to be clear, this is about as chunky a bit of new British kit as it is possible to imagine - 25,000 people would work on the construction and the UK would acquire valuable and exportable skills and expertise in new-generation nuclear technology.

Also the credibility of the government long-trumpeted low-carbon energy policy would be undermined, perhaps fatally.

Which is why David Cameron asked Lord Deighton, the Treasury's commercial secretary, and Stephen Lovegrove, the Energy Department's permanent secretary, to sort this mess out.

They talk to EDF, led in the UK by Vincent de Rivaz, on a daily basis.

My reading of the mood of both sides is one of cautious pessimism.

Nuclear reactor dials all pointing to zero Hinkley Point: For now, the dials point to zero

If anything, it seems remarkable to me that de Rivaz has somehow prevented EDF's board from pulling the plug, given that it is spending £1m every day to keep alive the possibility of an adventure whose starting date may seem from Paris to be somewhat elusive.

That said, the calculation being made in the Treasury and Downing Street is that EDF has more to lose from the deal's collapse than the UK does - the company would have to write off more than £1bn it has already spent on the project, and its ambition to become the global player in nuclear development and operation would be damaged, and perhaps terminated.

What may concern supporters of the Hinkley project, and not just EdF, is that ministers - and especially George Osborne - seem to me to be less worried about EDF ultimately walking away than about being seen to pay too high a price for the Hinkley power.

This is how one official put it to me: "The chancellor doesn't have an ideological problem with nuclear, but he won't do a deal unless the price is right".

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 470.

    213. treacle_01

    "Other way round. French taxpayers subsidise EDF"

    So you are saying the FRENCH TAXPAYER is is subsidising the power EDF supplies in the UK ... jolly decent of the French to help us out

    Errr? SO EDF doesnt make a huge profit in the UK then as an energy provider?

    I'd have another guess at this is I were you ..... maybe you might get it right this time ;)

  • rate this

    Comment number 469.

    "Sadly, what you say is not 100% true... Suggesting the banks are State Private Cooperation is one of the just not sos."
    Hmm... I guess you're ignoring:
    After giving banks free money from the BoE, the State forgives private bank losses via bankruptcy laws & massive tax-payer bailouts (£500+ Billion), then it takes ownership in the following:
    84% of RBS
    43% of Lloyds


  • rate this

    Comment number 468.

    The whole idea of Thatcher's privatisation was that the energy company would runs things more efficiently, conduct its own research and development and re-investment funds in itself.


  • rate this

    Comment number 467.

    Britains core utilities like transport and energy supply should never be in the hands of private/foreign companies. All the issues we have with our inflated energy and transport costs are rooted in the idiotic decision to profit from our core industries.

    We have, more than any other major economy, prostituted our assets to the highest bidder. Labour and Tory have put profit before Britons.

  • rate this

    Comment number 466.

    462. United Dreamer

    I concede IP is a mess at the moment, but do not deny that said industries are still innovating, which is driven by profits.

    As for the US military and NASA, they may very well be at the precipice of the future, but the result of such state funded research is massive debts. Many forget that the US lost its triple A rating on its debts.

    Debt is not sustainable; profit is.

  • rate this

    Comment number 465.

    If sufficient government funding were made available, don't we have the technology and skills to build the thing ourselves?

    Why does the project have to be run by a foreign company?

  • rate this

    Comment number 464.

    The free market has many benefits for the economy, but it will inevitably lead to low wages, monopolies and the death of entrepreneurship.
    I strongly disagree with your comments, of which you have absolutely no evidence to support.

    I'll just cite Hong Kong vs. pre 1980 China. To show the power that freer markets & competition have to increase quality, growth, wages & living standards

  • rate this

    Comment number 463.

    455: Sadly, what you say is not 100% true. Some bits are partly true, which is why it sounds convincing. Suggesting the banks are State Private Cooperation is one of the just not sos. Suggesting state owned is bound to fail, by pointing out one of the many 'communist countries' is not logical. Being 'communist' could be the factor. 500 words isn't enough to address your assumptions

  • rate this

    Comment number 462.

    #458 Jabdi - the whole industry has been forced into a quagmire of litigation. If you do not see that as anti innovation I don't know how to convince you otherwise.

    As for investment funded by the public purse, you just need to look at the huge number of inventions that have come out of military spending and NASA and as a result of wars. That is publicly funded investment.

    Profit stifles growth.

  • rate this

    Comment number 461.

    455. UKL_UK Libertarian

    The free market has many benefits for the economy, but it will inevitably lead to low wages, monopolies and the death of entrepreneurship. The wealth gap would widen, leaving the few successful very rich, and the "bad assets" by the waste side.

    In a free market, the majority of people would fail and would be trapped in a poverty cycle with, ironically, no freedom.

  • rate this

    Comment number 460.

    If we really have to have nuclear power to deliver Carbon Reduction targets; I just don't trust the private sector to deliver and run a safe installation. It would be even more distressed if they choose to deliver it by PPP's that have become a gross waste of taxpayers money! No - IMO a public service that provides subsidised generation to reduce and balance utility costs would be best.

  • rate this

    Comment number 459.

    Taxpayers had paid for the various utilities as they were state owned.
    Government came up with the wonderful idea of SELLING these utilities when in reality:
    Every taxpayer should have been GIVEN EQUIVALENT SHARES.

    There is an alternative - Public ownership of tidal power stations built into rivers that have ebb and flow every day.
    I was amazed at Lowestoft high / low water differences and speed!

  • rate this

    Comment number 458.

    £100 per MWh is 10p per kWh. That's a bit more than double the wholesale price of electricity and not much less than the retail price.

    (If you put the payment key in your meter and press the blue button a few times, one of the screens will show you the price you are paying per kWh.)

  • rate this

    Comment number 457.

    It would be interesting to see a breakdown of the jobs number of 25,000. If we look at the two existing EDF/Areva EPR projects the actual numbers on construction & operation are way below. These two projects are running years late and way way over budget. I guess we hope all the issues with construction are ironed out before this regrettable project begins

  • rate this

    Comment number 456.

    She didn't sell British Gas to her friends, there were massive queues outside the Stock Exchange for ordinary people to buy shares in it. Either that or Mrs T had a lot of friends.

  • rate this

    Comment number 455.

    There are 3 proposed market solutions here:
    A) State owned enterprises are proven to fail (USSR).
    B) State Private cooperation (Corporatism) fails, see USA largely now, or our domestic banking sector.
    C) Free market. Competition has been proven to drive costs down while increasing quality in every area it's allowed to operate. The freer a market is, the greater the competition, the lower the costs

  • rate this

    Comment number 454.

    Innovation by private management on previous privatised industries, such as Rail, energy, BT, is to reduce staffing levels (why so many trains have no drivers), cut wages and/or re-employ on lower contracts, pay directors a lot more, and cherry pick the profitable work, dumping the expensive and difficult bits if possible.

  • rate this

    Comment number 453.

    "#434 ClaudeBalls

    Public sector operating cost > Private Sector operating cost"

    That's economic conjecture and assumes a great deal. That's certainly not maths.

    Regarding cars, as I mentioned in an earlier post, state is good for infrastructure investment (roads, phone networks), the private sector is good for consumer goods that make use of the infrastructure (cars, phones etc).

  • rate this

    Comment number 452.

    You're right, the lobby veg in Westminster can't see further than the next brown envelope.Short term scruple-free tax cheating self servers are at the core of government.

    I was sickened to hear Frances Fraude blabbering on about a public sector funeral when he's so anti public sector spending and one of the most unreformed expenses wranglers in Parliament.

  • rate this

    Comment number 451.

    Much of our modernity came from the technology developed for NASA's space programme (also inherent in the cold war arms race).

    This was funded by THE STATE because no private enterprise would have been able to take such a task on.

    Today private companies are planning return to space - but it is built on top of the original STATE investment.

    A State needs its Citizens + Citizens need a State!


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