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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