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Pressure on UK government increases: companies want more subsidies

Nuclear Monitor Issue: 
Pete Roche

More and more companies are unsure about investing in new nuclear power plants in the UK. The latest companies that threaten to pull out and putting more pressure on the government to subsidize nuclear power through all kind of mechanisms, are GDF Suez and Centrica.

Centrica, the only British company in the running to build a new generation of nuclear power plants in the UK, has threatened to pull out. Executives at Centrica have warned the government that the plan hangs by a thread and could be scrapped if the company does not receive assurances about the future price of nuclear-generated electricity. Some of the government’s reforms, will be set out in the Queen’s Speech, which will set out the government's legislative plans for the next year. One element is long-term contracts that would guarantee a steady rate of return over the lifetime of a new plant – so-called “contracts for difference”. (The Queen's Speech is on May 9, unfortunately right after the deadline for this issue of the Nuclear Monitor.)

Contracts for Difference are effectively a long-term contract to buy nuclear power at a guaranteed price. If the market price is below the fixed price the Government would pay the reactor operator the difference. If the market price was above the contract price the operator would have to pay the  government.

The government has tried to help investors by proposing sweeping reforms of Britain’s electricity market, designed to attract investment in low-carbon electricity generation. As part of that, new nuclear plants will receive a guaranteed price for electricity. But the actual level of support has yet to be determined. A person close to Centrica said. “If we don’t get the right answers, we won’t proceed.” Centrica is planning to build a new nuclear power plant at Hinkley Point in a joint venture with EDF Energy. Late March two German firms, E.On and RWE, pulled out of the Horizon Nuclear Power joint venture, planning to develop up to 6.6 GW new nuclear capacity.

Only a few days earlier in April, another company, GDF Suez, is threatening to abandon the plan to build a new reactor at Sellafield. Gérard Mestrallet, chairman and chief executive of GDF, said what was on offer – a fixed carbon price and a "contract for difference"  - was "not enough and something is missing". He wanted talks with the government about the right fixed or minimum price for producing nuclear energy.

The Guardian newspaper wrote that a document (leaked to the paper) clearly lays out plans to use "contracts for difference" to allow nuclear operators to reap higher prices for their energy than fossil fuel plants. Fiona Hall, leader of the Liberal Democrats group in the European parliament said she now had no doubt that the contract for difference was a subsidy. "Industry on all sides believe this is a subsidy." She wants the UK court of auditors as well as the European commission to give a legal ruling on the issue and believes any subsidy runs against the coalition agreement.

The plans will further inflame rows over energy policy for the Liberal Democrats –who form the government with the Conservatives, and fought the general election firmly opposing an expansion of nuclear power.

A report from the Times newspaper on May 7, said French nuclear company EDF had raised the cost of building a nuclear power plant to 7 billion pounds (US$11.3bn, 8.7bn euro) from 4.5 billion pounds last year. "If the latest cost figures are true, new nuclear power plants in the UK are not commercially viable," Citi analyst Peter Atherton told Reuters. Based on the new figures, nuclear would be the most expensive form of electricity generation, exceeding even offshore wind, he said.

Sources: Guardian, 16 & 20 April 2012 / Financial Times, 20 April 2012 / Reuters, 8 May 2012
Contact: Pete Roche
Email: rochepete8[at]