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Newspaper claims UK Government could offer 40-year subsidies for nuclear new-build

19 February 2013

On February 18, the Guardian said the UK Government was prepared to provide extra inducements to companies prepared to build new nuclear plants in the UK in a “last-ditch attempt” to save the programme, including extending the subsidy period from 20 to 40 years.

An artist's impression of the Hinkley Point C nuclear power station EDF Energy is planning to build in Somerset
An artist's impression of the Hinkley Point C nuclear power station EDF Energy is planning to build in Somerset

The coalition agreement reached between the Conservatives and Liberal Democrats in 2010 promised that nuclear power stations would be built only if the industry got no public subsidy, the Guardian said, but costly overruns for new reactors overseas and the exit of several major utilities from the UK programme have led ministers to backtrack on that pledge and accept they will have to provide financial support.

After the withdrawal of E.on and RWE in 2012, the UK’s Centrica last month pulled out of its planned project with EDF Energy to build new plants at Hinkley Point in Somerset and Sizewell in Suffolk, citing unacceptable risks and spiralling costs.

EDF Energy is reportedly now seeking Chinese partners to replace Centrica on the project.

The Guardian says it has learned that ministers, intent on keeping the guaranteed wholesale cost of each unit of energy below the politically crucial figure of £100 per megawatt hour, are proposing to extend contracts from the 20 years originally envisaged to at least 30 and possibly as long as 40 years.

This would bring down the costs substantially by providing a longer period of guaranteed returns for the companies building and operating the plants.

Industry sources believe the likely agreed price for the first project in the pipeline to be contracted on this timescale – two 1.6 GW reactors to be built at Hinkley Point in Somerset by the energy company EDF – will be below £100, though not by a large margin. That price, however, is more than double the market price for electricity, and higher than all but the most expensive government forecasts for the future.

Whitehall sources quoted by the Guardian said they were confident that although the cost of the new reactor would be very high, that will start to fall with subsequent projects, and could fall as low as £55-56 a unit later in the programme. 

Suspicion about the clauses in the bill enabling future financial support have been fuelled by industry claims in recent weeks. Vincent de Rivaz, chief executive of EDF, told MPs that he wanted the government to guarantee buying all the possible output from the new nuclear plants, not just what was needed.

MPs are concerned about the government's changing rhetoric on subsidies. Since the 2010 promise there would be "no public subsidy", ministers have modified it to say no "unfair" subsidies – wording intended to cover support for a range of technology. This month the energy secretary, Ed Davey, admitted to MPs the funding mechanism could differ between technologies and even individual projects.

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