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, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    -21

    Comment number 153.

    We look to ourselves and point fingers at each other for the answers to these energy and infastructure problems, but how many of us look to The Lord for guidance and direction in these matters?

    God created a world in which man has prospered for several thousand years. He sent Jesus unto this earth to preach his word. Yet two thousand years later we have turned our back on Him and lost our way.

  • rate this
    -13

    Comment number 170.

    3.KURGANCODE

    "We are now in the unedifying position of having to ask the French Germans & Japanese to build stuff that we use to do better than anyone else"

    What red-tinted spectacles you have!

    The only thing the UK used to do better than anyone else was to ruin industries by strikes, demanding absurdly high wages, and low working hours etc.... which made us the "sick man of Europe".

  • rate this
    -12

    Comment number 358.

    if nuclear is so safe why is it used as a threat to other countries in terms of say trident??

  • rate this
    -10

    Comment number 306.

    304.Tiptext
    U didn't answer my question @292 at all.

    "Take the BBC, its makes programs that it sells abroad to subsidies our licence fee"
    =
    Why do we need a license fee at all? Criminal penalties for refusing to pay! If BBC is as wonderful as many say, let it compete equally with other networks. I'm sure it'll succeed, right? Why does a person who has Sky have to pay again for you to watch BBC?

  • rate this
    -9

    Comment number 277.

    Let's list government actions that makes power more expensive for you, me, and potential entrants to the nuclear power market.
    Government implements:
    Labour laws, property restrictions, planning permissions, business licenses, QE, subsidies to green power providers, protective tariffs, high taxes.

    It is because of these, and more, that competition is stifled and your power costs so much.

 

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