Friday, February 08, 2013

Now we know: £155bn: the cost of new nuclear power to consumers

It has been a bad week for nuclear power and the prospects of building new power stations.

Last week, Cumbria County Council voted against the area being used as a deep geological dump for existing nuclear waste, sending the whole process of looking for something to do with the country's stockpile back to the drawing board.

Looking after this existing waste takes up more than half of the annual budget of the Department for Energy and Climate Change. That's £1.6bn of public money every year.

On Monday, the House of Commons Public Accounts Committee published a damning report on the management of this waste, which said that "deadlines for cleaning up Sellafield have been missed, while total lifetime costs for decommissioning the site continue to rise and now stand at £67.5bn".

Margaret Hodge, its Chair, noted that: "taxpayers will have to foot the bill" and they "are not getting a good deal". Last year the consortium tasked with sorting out the mess, was rewarded with £54m in fees, despite only two out of 14 major projects being on track.

Also on Monday, Centrica announced it was ending its partnership with EDF, writing off a massive £200m and launching a share buy-back scheme to return another £500m of unused capital to its investors. As with RWE and E.ON last year, and, as Martin Horwood, MP, put it, "like any sane investor in my view, it has decided that it is not going to touch these new nuclear plans with a bargepole".

Finally, yesterday, MPs on the House of Commons Backbench Business Committee debated the question of the subsidy-by-another-name for new nuclear build in this country, contracts for difference, floated in the Energy Bill, but lacking detail of any sort.

The energy chief executive of Electricité de France, Vincent de Rivaz, told the Financial Times that the last thing stopping them going ahead with building a new nuclear plant at Hinckley and Sizewell “is the contract for difference. Once we have that, we’ll have a compelling investment case to attract partners into the project”.

In other words, as Martin Horwood told MPs, “If you don’t subsidise us, there is no business case.”

How much is EDF asking for? The negotiations have so far been shrouded in secrecy, but for the first time, some figures came out in yesterday's debate.

According to the Energy Fair group of energy consultants and academics, the real cost of nuclear power is at least £200 per MWh. This is much more than the cost of offshore wind power (140 per MWh) or that of onshore wind power (£90 MWh).

Based on this, EDF might be asking for something as high as £165 per MWh for the strike price. A similar figure comes from Steve Thomas of Greenwich University and Peter Atherton of Citi: a strike cost price of £161 per megawatt.

This compares to today’s wholesale price for electricity of around £51 per megawatt.

The government would have to enter into a 30-year contract life for the two proposed plants at Hinkley and Sizewell.

Over this period, then, the total cost to householders and businesses or taxpayers would be £155bn by 2050. That is without any of the additional costs, such as insurance and accident protection, dealing with waste, etc.

As Mike Weatherley MP said yesterday: "Imagine the renewable energy industry if we had invested over £155bn in it".

Much of this cash would leave the country as EDF is based in France.

We are talking about not some new technology like tidal power, but a mature and not very competitive industry started in 1956.

MPs were asking for the Public Accounts Committee to scrutinise the economic case for nuclear new build and contracts for difference. Unfortunately, its chair, Margaret Hodge told them that, much as she would like to do this, she couldn't, because the committee can only examine contracts after they have been signed. In this case, that would be too late.

MPs bewailed the lack of information that Parliament had been given about the negotiations with the EDF. Joan Walley said: "It is impossible to understand how Government policy is being taken forward in this area, because of the complete lack of transparency and of an evidence base."

This led Ed Davey to come before MPs and pledge that the House would be told the nature of any contract agreed with EDF before it were signed. Then why haven't they done that already?

Let's be clear, the Treasury’s levy control framework, which caps the costs that can be added to consumers’ bills, currently specifies a figure of £2.6bn a year. There are estimates that the cap would have to rise to £12.5bn or more to provide 16 GW of nuclear power by 2025.

I don't think the Treasury is going to agree to this.

EDF's Olkiluoto plant in Finland was begun in 2005 and should have gone on line in 2009. It is six years overdue and €4.3bn over budget. Its Flamanville facility is now four years late and and €4.8bn over budget.

Clearly, new nuclear cannot be built without a subsidy. Therefore, it should not go ahead at all. Instead, it should yield to other forms of energy, particularly renewable energy.

Ed Davey promised yesterday that "each contract will need to deliver value for money for the consumer and be compatible with state-aid rules". On present evidence, EDF is a not going to deliver this.

Waiting in the wings are Chinese companies. And do we really want state-owned Chinese companies entering into the British energy market and being privy to our nuclear secrets?

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