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‘We’ll live to regret’ handing energy subsidy to the French

Tim Webb

The Times, June 11 2012

SSE chief issues stark warning over reforms

Families will be forced to pay higher energy bills to fund subsidies to the French for a radical overhaul of the power market, the boss of one of the country’s largest energy companies has warned.

Ian Marchant, the chief executive of SSE, said that subsidies demanded by the French state-owned EDF Energy to build new nuclear reactors in Britain would saddle consumers with higher bills for years to come.

He will outline his concerns about the reforms of the electricity market, which were unveiled by the Government last month, to a committee of MPs tomorrow.

“If the EMR [energy market reform] is passed in its current form, it’s a piece of legislation the UK will live to regret,” he said in the most outspoken attack on the Government’s faltering energy policy by an industry executive to date.

The coalition intends to offer generous subsidies, funded by levies on energy bills, to make building expensive new nuclear reactors economic. Ministers argue that ageing reactors need to be replaced to guarantee supply and to make sure that Britain hits its target to cut carbon emissions. Their hopes now rest on EDF Energy after two German companies, E.ON and RWE, abandoned plans to build up to six reactors in Britain.

EDF Energy has promised to decide at the end of the year whether to invest in a new reactor at Hinkley Point in Somerset — the first of up to four it could build in Britain with its junior partner Centrica.

The Times revealed last month that EDF Energy’s estimated costs of building the reactor had soared by 40 per cent to £7 billion. The investment bank Citigroup said that the company would be likely to need subsidies equivalent to more than triple the present electricity price to make the investment viable.

The Government has invited banks, accountancy firms and consultancies to bid to represent it in secret negotiations with EDF Energy on setting the level of nuclear subsidy. Mr Marchant said that the negotiations should be made public and that the Government risked being hoodwinked.

“Public sector procurement has not exactly covered itself in glory,” he said. “Politicians are asking for authority to sign something in a side room and say ‘trust us’.” He said that consumers would be saddled with expensive electricity prices for decades to come if demands made by EDF Energy were met. Whitehall sources promise that the Government will walk away from talks if the subsidy demanded is too high.

Mr Marchant said that the reforms were geared towards “making nuclear fit in” and would make investing in renewables such as wind farms more expensive. He argues that Britain does not need to build any new reactors because gas prices are cheaper, electricity demand has fallen and reactors originally due to close over the next decade will have their lifetimes extended by about seven years. “EMR is fixing a problem we do not have,” he said.

Energy bills are at a near-record high, with the average annual dual electricity and gas domestic bill standing at £1,252. The Committee on Climate Change estimates that bills will rise fractionally over the next decade despite the construction of power plants such as reactors and wind farms — but only if consumption is cut by a fifth. The Government argues that the cost of building reactors eventually will save money by insulating the country from expensive and volatile gas prices.