We are signing up to decades of over-priced electricity. Why?

 
Allister Heath

OUR energy policy is going from bad to worse. Not only are our bills already rocketing, largely as a result of a flurry of costly UK and EU green initiatives, but we are about to lock in high prices for decades to come by signing up to a fresh supply of horrendously over-priced nuclear electricity.


The priorities of our political establishment – the coalition, Labour and Brussels – are no longer about ensuring a good deal for consumers. It is only belatedly remembering that costly energy is personally painful and economically destructive and that the lights need to be kept from going out; for all the shifting rhetoric in recent weeks, the over-riding imperative remains decarbonisation at any cost, even though emissions in other countries are rising by a larger amount than they are falling in the UK.

I’ve long liked nuclear energy, especially as an alternative to renewables: like them, it is a low carbon source of energy and it is much cheaper and more reliable than windpower. But I’m starting to regret my erstwhile support – not on environmental or prudential grounds but simply on account of cost. Of course, if the only option were either wind or nuclear, the latter would win hands down. But there are lots of other potential sources, not least tapping the UK’s shale reserves, a possibility which didn’t exist as recently as five years ago.

Electricity produced by nuclear plants is too expensive at the moment, especially when compared to the likely cost of shale; it will impoverish taxpayers and consumers and cripple many firms. One big advantage is that nuclear is more “secure” than traditional sources of (non-North Sea) oil and gas – it doesn’t rely, at least in theory, on dodgy regimes that use the receipts to finance unsavoury activities or who like to use their natural resource to wage economic war.

But we are getting French and Chinese companies (and in practice, given the corporatist nature of their economies, their states) to build our nuclear power, so this argument is no longer as strong. We also still need to buy uranium: Kazakhstan is the largest producer. The “energy independence” cost-benefit analysis has also changed since the discovery of shale: it is the perfect home-grown source of energy.


Yet we are now about to sign up to decades of expensive energy, courtesy of a deal that the coalition has signed with EDF in return for it to build the UK’s first nuclear power station in 20 years. The government will guarantee a purchase price for electricity of above £90 per megawatt hour, twice the market price.

If we assume that EDF will build two 1,600MW reactors, operating at 90 per cent efficiency over a 35 year lifespan, at a cost of £14bn, this implies a return on capital of at least 9.5 per cent. Does this number really need to be that high? I doubt it very much. What is wrong with seven per cent? Why can’t the plants be kept going for longer, thus spreading the cost?

The government needs to explain carefully why it believes it needs to pay such a large subsidy. We need to see all of the assumptions and all of the facts to make sure that this isn’t just another incompetent, giant rip-off.

LET SCHOOLS CHOOSE
School reform has been one of the coalition’s most important successes. Academies and free schools can now hire who they want, pay them what they want and not adhere to the national curriculum – thus enjoying some of the autonomy that was once the preserve of private schools. These reforms are now under threat from Nick Clegg. This is a pathetic u-turn. Schools need to be free from endless political meddling from second-rate apparatchiks and disciplined instead by market forces and parent power. David Cameron, for once, must show some courage and speak out forcibly in defence of these reforms.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath