Four big questions about the nuclear deal
The government’s agreement with French energy company EDF on the financing of a new nuclear power plant in Hinkley, Somerset is “the biggest nuclear deal this country has ever made”, according to energy minister Ed Davey.
If built, Hinkley C will generate 3.26 gigawatts of power – enough to power six million homes, the government says. The last nuclear power station to be built in the UK was Sizewell B, which is less than half the size.
So Hinkley could be a big addition to the UK’s ability to generate power. But there’s been a mixed response to the deal from across the political spectrum, and a variety of questions raised about the agreement between the government and EDF.
Here are four key questions about Britain’s prospective nuclear future.
1. Could nuclear power really reduce consumer energy bills?
Energy minister Ed Davey claimed yesterday that building “a fleet of new power stations” will save £77 on consumer energy bills by 2030. The media seems unconvinced, with the Financial Times likening the new deal to a bet – ” the wager the government has made on the country’s behalf”.
The government predicts that Hinkley will cost £16 billion – around twice the price of the London Olympics. In order to convince EDF that it will get a good return on its investment, it has agreed to pay the company £92.50 per megawatt hour of electricity produced. That’s more than twice the current wholesale price of electricity.
The extra money will come from a levy on consumer energy bills. So subsidies for new nuclear will add to energy bills – although not until 2023, when Hinkley is expected to start producing electricity.
So where does Davey’s claim that nuclear power will save money come from? The Department for Energy and Climate Change (DECC) tells us it’s based on the assumption that six new nuclear power stations are producing electricity by 2030.
The Daily Telegraph points out that the £77 figure is calculated by comparing with a scenario where renewable power and carbon capture and storage (CCS) technology are used to achieve the same level of decarbonisation as six nuclear plants.
CCS and renewables are relatively expensive. So it’s worth noting that this calculation is going to look different if, for example, there was a massive push on energy efficiency instead, or if the government abandoned its climate targets and burnt more gas instead of using nuclear power.
Davey argued yesterday that it would be riskier to rely on gas, because it’s very difficult to know whether the price of gas will go up or down in the future. But in a useful bit of early analysis of the strike price, the Financial Times suggests that consumers will only “break even” by 2030 if the wholesale cost of electricity follows DECC’s highest projections.
2. How many nuclear power stations are going to get built?
The new power station at Hinkley Point will supply seven per cent of the country’s electricity from 2023, according to DECC. And it will produce electricity for 60 years.
EDF is apparently considering whether to build another nuclear power station at Sizewell in Suffolk. It hasn’t made a final decision on Sizewell yet. An EDF spokesperson has suggested that a new planet at Sizewell could be built by 2024/25, according to the Telegraph’s Emily Gosden.
If the government gets its way, that’s just the beginning. The UK currently has 16 nuclear reactors generating about 18 per cent of its electricity. All but one of these are due to close by 2023, according to the World Nuclear Association.
If the UK wants a ” fleet” of new nuclear power stations to replace the old ones, it’s clear the government has a fair bit more negotiating to be done. At the moment it’s not at all clear who is going to build those power stations, or how much it is going to cost.
3. Will Hinkley be delayed?
New nuclear power plants don’t have a good history when it comes to being built on time. Two nuclear construction jobs of the same type as Hinkley C – one in France and one in Finland – are currently twice over their original budget and are expected to come online years late, the Financial Times points out.
This project has already slipped. EDF previously suggested the Hinkley plant could be producing power by 2018 – the date announced yesterday is 2023.
A spokesperson for EDF said that the agreement with the government provides a “huge incentive to deliver on time and under budget” – because it won’t start getting any government subsidy until the power station starts producing electricity. He added that the company feels “quite comfortable with the agreement” and that its learned from previous experience where projects have overrun.
4. Whose risk is it anyway?
EDF hasn’t gone into this deal alone. It will own 45 to 50 per cent of the new power station; two Chinese companies will own 30 to 40 per cent, the French state owned group Areva will own ten per cent, and a “short list of other interested parties” could own up to fifteen per cent of the project, according to EDF’s press release. Together, the companies form a new company called NNGP.
The government says the new company will take on the risks of constructing the new power station on budget and on schedule – not the UK taxpayer. But it might not be as simple as that. First, the financial agreement between the government and NNGP is subject to change, as Greenpeace’s EnergyDesk points out. The support price agreed by the government can be “adjusted, upwards or downwards, in relation to operational and certain other costs … at certain fixed points, and in relation to certain future changes in law”, according to the agreement.
So it might be reasonable to see the agreed support price £92.50 as a starting price – it could have changed by the time the power plant starts generating electricity. The deal could end up costing consumers more than anticipated. Or less, if you’re feeling optimistic.
Second, NNGP is expected to borrow a large chunk of the money needed to build the power station – and the UK taxpayer will underwrite the loan.
The government announced in July that it will guarantee loans worth £10bn in order to ensure that Hinkley gets built. NNGP could borrow up to 65 per cent of the £16 billion it costs to build Hinkley. If for any reason it failed to pay the loans back, the UK government would have to pay up.
Of course, these caveats could apply to other large-scale infrastructure projects. But with new nuclear it’s the scale of the costs and the length of the financial implications which will focus the minds of those examining the details of the government’s deal.