The UK would be agreeing to buy electricity from Hinkley Point at £93 per megawatt hour – roughly twice the current market rate. We could be staring at a truly astronomical cost by the end of the contract.
The deal is still to be signed, but already some extraordinary claims are being made about Hinkley Point in Somerset, which will be the first nuclear plant to be built in the UK since 1995.
Here’s chancellor George Osborne’s take: “If it wasn’t Chinese investment or French investment, it would have to be the British taxpayer. I would rather British taxpayers were spending their money on our schools and hospitals and those things, and let’s get the rest of the world investing in our energy.”
Put like that, you might assume UK taxpayers have hit the jackpot, that EDF of France and China General Nuclear Power Corporation (CGNPC) will bear all the financial risks and that energy bills in the UK are bound to fall sometime around 2020 as cheap nuclear energy comes on stream.
Forget it. The UK will be agreeing to buy electricity from Hinkley Point for 35-40 years at £93 per megawatt hour or thereabouts, according to the whisper from Westminster.
That is roughly twice the current market rate for electricity, and far in excess of the £40 per megawatt hour that was airily waved around by the Department of Energy only half a decade ago.
Nuclear power, it seems, can only be bought at a cost roughly equivalent to on-shore wind, complete with its subsidies to landowners. Maybe that is the price that has to be paid for secure low-carbon supplies, but at current energy prices, the first impact of Hinkley Point will be to add to consumers’ bills, just as wind does today.
“In the long term,” the chancellor continued, new nuclear should lead to “lower and more stable energy bills.”
The key phrase there is “long term”. The claim rests on the assumption that the costs of other sources of energy will continue to rise and make £93 appear a bargain sometime in the future. That assumption may or may not prove correct – but coming from a government that supposedly thinks fracking will revolutionise the energy market, it’s a strange argument to hear.
But is £93 the real cost anyway? The devil will be in the detail of this contract – specifically, in the indexation formula for the strike price. If Hinkley Point’s entire output is tied to the rate of inflation for 40 years, we could be staring at a truly astronomical cost by the end of the contract.