Nuclear: the corporate killer in our midst?

By Rowena Mason
The Telegraph
November 10, 2009

Ed Miliband says: we need 10 new nuclear stations – and quick about it.

The men with the calculators reply: at the moment, it’s looking about as possible as splitting the atom with a blunt instrument and your bare hands.

Amid yesterday’s triumphalist fanfare about the new dawn of nuclear revolution (Ed Miliband, the Energy Secretary) and a significant milestone for the new industry (Vincent de Rivaz, EDF Energy), it was easy to miss the voices of caution about the likelihood that all these saviour stations will all actually be built.

The turbines inside British Energy's Heysham nuclear power station

Analysts from Citigroup point out that the Government is forcing potential nuclear investors – among them EDF, Centrica, E.ON, RWEnpower, ScottishPower, GDF Suez and Scottish & Southern – to take on full exposure to the risks of construction, a volatile power price and operations. These, they claim, are stalking “corporate killers so large and variable that individually they could each bring even the largest utility company to its knees financially”.

And there’s more: “Nowhere in the world have nuclear power stations been built on this basis. Nor will they be built in the UK. We see little if any prospect that new nuclear stations will be built in the UK by the private sector unless developers can lay off substantial elements of the three major risks.”

The Sizewell nuclear plant in Suffolk

Adding to the doubters, we have Omar Abbosh, Accenture’s head of utilities, who has advised the Government on energy issues, warning that: “For all the optimism about nuclear new build in the UK and speeding up the planning process, we will not see sufficient nuclear investment until regulations are changed to address finance. The UK’s liberalised market cannot support major capital investment needed for nuclear and large scale wind.”

To make matters worse, the big European utilities are already drowning in debt, selling off reliable assets like their regulated electricity networks to pay it down. Another worrying sign is that EDF, the biggest investor in UK nuclear, is currently looking for a second partner on top of Centrica to take a 20pc stake in its new build programme to help spread the risk. Then there is the threat that potential money men may turn their attention away from the green glow of the UK’s nuclear revival, as dozens of other governments worldwide start sanctioning new stations, offering more tempting subsidies along the way.

So what are the Government’s options if it decides to remove its head from the nuclear bunker to see the looming financing problems?

Broadly speaking, the UK could offer loans, reform of the carbon trading system or direct taxes. The Government has already ruled out any levies to subsidise nuclear power on household bills or direct financing. If it doesn’t back down, this leaves the major players, such as EDF, pushing for a floor on the price of carbon permits.

Companies already buy and sell the right to emit carbon dioxide on the open markets, which is meant to make it cheaper for investors to build and operate clean energy projects at the expense of fossil fuel generation. But the carbon price is currently too low to make much difference. The utilities argue that a lower limit of around $35 on the price of a permit will make it economically viable to invest in nuclear power –politically unpopular, since it is likely to push up the price of gas and electricity generated by fossil fuels. But the push for low-carbon power generation is going to be expensive for consumers whichever way the country comes at the problem.

The question now is when the UK will start listening to the experts and realise that simply announcing it wants 10 new stations is not enough financial inducement for them magically to appear.