Will the Government Write a Blank Cheque for Nuclear Construction?

Underwriting would make a complete nonsense of any notion of nuclear power being competitive with renewable energy sources such as wind power and solar power which certainly are not in receipt of underwriting commitments.

The government's plans for new nuclear power stations are on the rocks, and it would require desperate measures to save them. Some evidence of the desperation emerged when John Hayes, the recently appointed minister for energy said, in an interview with the Daily Telegraph, that he is 'mulling over' the possibility of underwriting plans for building new nuclear power stations. He appeared to be referring to the last remaining 'live' proposal by EDF's for a 3.2 GW nuclear power plant at Hinkley C in Somerset. Mr Hayes would be well advised not to sip from the poisoned chalice (underwriting) he has been presented by nuclear supporters via the Daily Telegraph.

Underwriting means telling EDF, in effect, that the government would foot whatever bill it took to build the power plant. Nobody knows for sure how much that would be given than similar plants still being built in Finland and France are now terribly over budget and a long time behind schedule. Underwriting would blast a hole through specific Conservative pre-election commitments not to underwrite nuclear power construction, not to mention Ed Davey's pronouncements about there being 'no blank cheque' for nuclear. Underwriting would make a complete nonsense of any notion of nuclear power being competitive with renewable energy sources such as wind power and solar power which certainly are not in receipt of 'underwriting' commitments.

The energy consumer would be funding such a blank cheque, this would effectively mean that nuclear power costs were being nationalized and billions of pounds handed over to a multinational company in an unlimited commitment. Despite the long history of the financial uncompetitiveness of nuclear power we still see assertions by the engineering establishment that it is cheap, cheaper than renewables, and so on. This is always based on the notion that the next design will be much cheaper than the last one. It never is - on the contrary, the trend in costs seems to be upwards. Banks refuse to invest in new nuclear power stations without the loans being underwritten. In theory, EDF can borrow money off the markets to fund Hinkley C. The problem is that EDF shareholders would take the risk of falls in dividends and share prices. Credit ratings agencies will not be amused if EDF's debt-to-earnings ratios rise and seem imperiled by highly uncertain nuclear investments in the liberalized British electricity market.

Although, in the past, the costs of nuclear power stations have been sunk in the accounts of nationalized industries and the consumers made to pay the costs through being beholden to monopoly suppliers, this time the cost comparison with other options seems painfully clear. Nuclear is more expensive than renewables - now - never mind in the future as renewable costs decline. The government, in their Electricity Market Reform, have set up what is in effect a competition to deliver low carbon sources at the cheapest 'strike price' - that is a price that the electricity consumer would pay for each unit of 'low carbon' electricity generated. The trouble for nuclear power is that when it comes to the crunch they need rather higher amounts set as a strike price than what the government is willing to set to pay for onshore wind power and even allegedly expensive offshore wind power and solar power.

Anti-windfarm groups are fond of attacking the subsidies going to onshore wind, but the price needed to be given to onshore wind developers will be much, much, less than what would have to be paid to EDF for new nuclear power. Public support for paying more to nuclear than renewables for producing a given amount of electricity is likely be very low indeed. So, nuclear supporters are hoping for a fix that avoids the spectacle of being declared too expensive. That is where underwriting comes in. But, politically, (as well as cost-wise for the consumer) that sinks like a lead balloon, no matter how the brilliant nuclear PR spinners want to pitch such a proposition. It is not as if the UK needs any new nuclear power stations to supply electricity, for which demand has fallen by 8% since 2008. This is regardless of whether you look at a conventional picture of the fact that gas power stations can be built much quicker than nuclear ones or, preferably, at green ones where renewables, smart grids, energy efficiency and other techniques contribute towards decarbonisation of the economy.

What is my bet on what happens? Well, the government could take the easier option, which is simply to blame EDF for not coming up with the goods. In return, EDF could blame the government for not offering them enough 'certainty' on future electricity payments. Regrettably, meanwhile attention has been drawn away from the lack of support proposed for renewable energy. The terrible irony of the government's proposals is that the renewable energy support mechanisms proposed in the Energy Bill have been hamstrung by the political drive to give priority to a nuclear power building programme that may never actually materialize.

Dr Toke is the author of a report Fixing Renewables, a new report published by Friends of the Earth and he is also Senior Lecturer in Energy Policy at the University of Birmingham. He is also a member of the Green Party of England and Wales.


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