We need nuclear, but not at any price

13 July 2012

The UK government's Energy Bill foresees a future of new gas-fired and nuclear plants, as well as wind, solar and wave power. This will require investment of £110 billion to make up for the 25% of generating capacity that will close over the next few years. The UK’s energy-intensive industries are already paying up to 24% more than their competitors in countries such as France and Germany, and this is set to rise even higher as the measures in the Bill are introduced.

A key indicator as to whether government has the will to control spiraling energy costs will be the deal that the Department of Energy and Climate Change cuts with EDF Energy over “contracts for difference”, the subsidy DECC agrees to pay for the low carbon electricity from the two new EPR reactors to be built by EDF at Hinkley Point C.

Following the withdrawal of E.On and RWE from the proposed nuclear new build programme in March, EDF is now the almost the only game in town, apart from Nugen in Cumbria, and is in a position to strike a very hard bargain indeed.

A recent visit to Hinkley, where preparatory work on the site is well in train, confirmed to me that EDF is totally committed to the new plant. But in mid-June, EDF Energy boss Vincent de Rivaz gave a House of Commons committee a “very downbeat” assessment of the future of nuclear generation in the UK, which could well be interpreted as: “Give us truckloads of cash or your nukes don’t get built.”

Steve Elliott, Chief Executive of the Chemical Industries Association, one of the most energy intensive industries, confirmed how important these negotiations will be.

“Manufacturing in the UK needs help and support to deliver the green future we all want to see. That help does not have to be free handouts but just a halt to crippling costs would be a start. I am afraid this Bill, which has some attractive parts, will yet again heap more cost on to business. In a globally competitive market I worry that companies will have further reason to move investment away from the UK. The nuclear industry does need support but if that support comes through heaping the cost onto already hard-pressed customers then that customer base will diminish.”

The recent announcement that subsidies for onshore windfarms will be phased out shows that some parts of government are finally prepared to address excessive costs in the sector. The same realism needs to be applied to the issue of new nuclear capacity. With the prospect of a revolution in energy supply dynamics as ever more shale gas comes on stream, we should only lock ourselves into a decades-long nuclear compact with EDF if it offers a genuine long-term prospect of inexpensive electricity.

...Alan