News 2015‎ > ‎News 2012‎ > ‎

EDF demands subsidy guarantee to build new reactor

EDF demands subsidy guarantee to build new reactor

EDF Energy’s proposed £14 billion project at Hinkley Point in Somerset has been affected by soaring construction costs

By Tim Webb

The Times, October 8 2012

France’s EDF Energy is demanding that the British Government draw up special legislation to guarantee billions of pounds worth of taxpayer-funded subsidies in exchange for building the country’s first nuclear reactor for decades. The company wants hefty subsidies, paid for by levies on consumers’ electricity bills for at least 25 years, to make its £14 billion reactor project at Hinkley Point in Somerset viable after construction costs soared.

EDF is in advanced negotiations with the Government about how much it will receive. But according to sources close to the company, there are concerns that the agreed subsidies could subsequently be slashed if there is a public backlash against the amount.

The company has asked the Government to pass a special emergency “paving” Bill setting out the agreed payments, which would make it harder for them to be cut in the future. It is thought that executives at the French parent company in Paris, which must give its approval for the project to go ahead, are particularly anxious that the Bill is in place before a decision is made.

Sources close to the Department of Energy and Climate Change indicated that EDF is unlikely to get its way.

The demand by the French state-controlled group shows its nervousness about making the £14 billion investment amid the mixed messages being given by the coalition Government on energy policy, and politicians’ and consumer groups’ mounting concern over the rocketing costs of nuclear. The Treasury is now pushing a plan to build dozens of new gas plants as a cheaper alternative to nuclear reactors. The Liberal Democrats, who are traditionally opposed to nuclear power, remain more supportive.

It is understood that EDF had initially asked government officials for a subsidy of about £165 per megawatt hour, equivalent to almost four times the wholesale price of electricity, for its Hinkley Point project. The company denied that it was seeking this amount.

EDF has been telling its suppliers to come back with lower quotes to bring down the cost of the project. The company has since suggested that the subsidy level will be between £100 per MWh and £140 per MWh.

The Times has also learnt that the timetable for EDF and its junior partner Centrica to make a final investment decision by the end of the year, as promised, is likely to slip into early 2013. The Planning Inspectorate is due to make its final recommendation on the Hinkley Point project to Ed Davey, the Secretary of State for Energy and Climate Change, on December 22.

Acting in a “quasi-judicial” role, he then has to make a final decision, but it is not clear how long this would take. Assuming that he approves the project quickly, the board of EDF will have the remainder of the month to decide whether to go ahead.

Several industry sources said that given the tight timetable during the festive season, it was likely that a final decision by EDF will slip into January next year. The company does not need to wait for Mr Davey to issue his determination before it decides whether to go ahead, but this would make the decision more difficult.

Sources close to the company are understood to be relatively relaxed about what is likely to be only a short delay. But even a minor lapse could undermine confidence in its ability to deliver the Hinkley Point project on time and on budget.