Will The Government Make Customers Pay For Nuclear Power Plans?
Lisa Waters, Director and economist at Waters Wye Associates Waters Wye Associates asks whether subsidy is on the agenda for the new breed of nuclear plants.
EDF has announced that they are to reduce the workforce at their new nuclear power station development, Hinkley C.
EDF are currently trying to negotiate a price that the Government will allow them to sell the plant’s output for over the coming decades. This is taking longer than EDF hoped and now they are trying to manage costs while awaiting a result. The prices flung around have a wide range, but the point for customers is this is still premium price power, which will add to energy costs.
The arguments for new nuclear plant are: the old ones need replacing; nuclear is low carbon; nuclear is base load and relatively reliable.
The arguments against are: we could build gas (with carbon capture in future) to fill the gap; nuclear build tends to go over time and over budget; and why should customers pay more for energy.
There are of course wider issues around nuclear waste and some object in principle. However, the problem remains that if the Government decide to select which power stations get built they also have to work out how to fund them.
How much customers will pay depends on the “strike price”. If the wholesale power price is below the strike price then the power output is given a top-up payment. If the market price is over the strike price then the generator pays the difference back.
Guaranteeing a minimum income for the investor allows the plant to get financing.
However, there are considerations around who carries the risk if the plant is late, and how long the guarantee lasts. It is the detail of the deal that may well be delaying its finalisation. Either that or Ministers are having second thoughts about just how big a burden it can put on energy customers in paying for its energy policies.
Even if a deal is done, the Government will have to convince the European Commission that the deal is not a state aid. I am no lawyer, but it looks a lot like a subsidy to me! How long this clearance may take is also unclear. However, the Government may find the opposition to new nuclear in this century is not about the principle, but how much it costs and who is paying.