21 Oct 2013

British taxpayer is massively exposed by EDF/China nuclear deal

To make it happen, Ed Davey (pictured below) and his team have had to look into their crystal ball and come up with a wholesale price for electricity a decade from now and then be confident enough to agree to freeze that price for 35 years!

It does seem somewhat ironic that David Cameron says Ed Miliband‘s plan to freeze energy prices for 20 months from 2015 is a “con” because he can’t control wholesale prices, when here we have the government happily agreeing to freeze wholesale prices for 35 years. And not from 2015 – round the corner in energy terms –  but from 2023. And that’s if the reactors are actually built by then.

Britain's Secretary of State for Energy and Climate Change Davey speaks during the Liberal Democrats annual conference in Brighton

The price they’ve agreed to fix it at is £92.50 per megawatt hour. Which means if, in a decade’s time or at any time in the following 35 years the price falls below that value, it’s us, the taxpayer, who’ll have to step in and top up the difference.

And that will mean a hike in our energy bills, particularly since most experts seem to believe the overall trend is for electricity prices to come down over time, and not up. And clearly EDF and the Chinese would not have done a deal had they believed prices were on an upward trajectory.

To be fair, the government says that if EDF also commits to building another nuclear station at Sizewell in Suffolk then the strike price agreed today will fall, although by how much we don’t know.

But for now the facts remain. £92.50 per megawatt hour is twice the current market rate for electricity generated from nuclear and way above the £40 per megawatt hour envisaged by the Department for Energy but five years ago.

But that’s not the only way the taxpayer is on the hook. According to the statement, the entire Hinkley C project is eligible for the government’s infrastructure guarantee which means the Treasury (i.e. us, the taxpayer) will stand behind 65 per cent of the operational costs of building the plant. Which, put simply, means that if EDF and its partners can’t fully fund the deal, then the British taxpayer will stump up the costs.

That’s some promise, especially considering the price appears to have already gone up from the £14bn they said it would cost to build Hinkley C to £16bn, revealed today – a hike of some 14 per cent. And that’s before the construction has even started.

Without those guarantees EDF and the Chinese would never have got on board and nor would any potential lenders. So, in effect, this is a massive subsidy in all but name, as much as the government is determined not to use the dreaded “S” word. If it wasn’t a subsidy, Mr Davey, why then do you have to seek European state aid clearance for the deal? Clearly, without the agreed strike price and the loan guarantees, Hinkley C would never see the light of day.

Which begs the question: why is the government so desperate to do this deal, it’s prepared to sell the farm? To wrap EDF and the Chinese so firmly in cotton wool there’s virtually no risk to them at all – while the British consumer appears to be bearing the majority of it? The government claims that to develop Hinkley will generate 25,000 jobs and, once up and running, the plant will reduce electricity bills by about £74 a year, which clearly in an age of ever rising energy bills is to be welcomed.

But that’s assuming nothing about today’s deal – none of the numbers, terms or costs – change. Yet you only have to look at the two nuclear reactors being built currently by EDF in Europe – both about five years delayed and double their original budget – to see that with nuclear, that almost never happens.

And of course, as Npower becomes the latest of the big six to raise prices today, it’s worth noting this massive deal, this huge gamble with taxpayers’ money, will do nothing to reduce prices now.

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9 reader comments

  1. Ray Turner says:

    Gordon Brown made the same mistake with PFI funding for new hospitals etc.

    I’m surprised the current Government are repeating it.

    But it shows that despite all the rhetoric, the dogma & the ideology, at the end of the day our three main political parties are essentially as incompetent as each other….

  2. adil says:

    Siobhan perhaps you could inform the Government of your findings as it appears very possible that the Government had to lay-off advisers and civil servants with any numeracy skills or common sense? I have an unsettling fear that the Treasury advisers consist of a few pebbles a glass of water and a plank of wood.

  3. Philip Edwards says:


    If nuclear plants are as safe as these spivs keep telling us…….why don’t they build one in place of Battersea power station…..or some other site in the middle of Lahndan, not in a beautiful part of the country?

    Couldn’t be because the tories and the profiteers are liars could it…..Well, could it?

  4. Energy Nerd says:

    I assume we would agree that we want all of our electricity generated from a cheap, reliable and renewable source? The difficulty the coalition faces is that apart from one, the other 15 nuclear power stations in the UK are set to close by 2023 and are currently responsible for providing a fifth of the UK’s current electricity supply – this generation capacity needs to be replaced, but with what?

    Coal is not environmentally friendly and is now subject to tax levies, gas-fired power stations do not guarantee security of supply as we have to import the majority of the gas and LNG and finally, we cannot guarantee that we will be able generate enough electricity from renewables such as wind, solar and tidal by 2023.

    Yes we should have invested more in renewable technologies but there were no incentives for both previous governments to do so and now we are backed into a corner. The strike price is far from ideal and what I would like to have seen is the government explore using UK PLC’s money to invest in this as opposed to other proposed infrastructure projects, HS2 for example.

    I think for huge areas that impact our lives heavily such as energy, education, health and defence we need to agree a cross party long term framework for UK PLC to avoid being forced into situations such as this again in the future.

  5. Andrew Dundas says:

    Aren’t these loans an integral part of the Public-Sector-Borrowing-Requirement?

  6. Pauline Flynn says:

    Should the government not redirect the proposed investment in high speed trains into investment in power stations. Energy supplies are a greater priority for our economy. The risks to the taxpayer and the consumer would be much reduced if the project is publicly funded and the control of the power supplies would remain within the UK.

  7. Kate Collier says:

    I think any excess should come out of Cameron’s own pocket, even if he’s not an MP then. I come from Bridgwater, where waste was always taken to the railway sidings near Eastover Primary School. We called it the Doom Wagon. It is too costly and DANGEROUS!

  8. Andrew Dundas says:

    I don’t know whether it was intended as an incentive, but I’m receiving 50 pence per Kilowatt hour from the PV panels on our roof. Moreover that’s a guaranteed rate, indexed to CPI for 25 years.
    50 pence per KWh works out at £500 per megawatt.

    Quite a bit more than EDF will get!

  9. M J Marks says:

    The Royal Academy of Engineers has published figures showing that off shore wind turbine generation costs were 72£/MWh. Two years ago. Compare that to project cost in 20 years of £92.50.
    The main point, or lesson to be learnt by the naive, is that crisis shopping can never result in a bargain, they knew we had our backs against the wall.

Comments are closed.