For more on this topic, click here to see my Political Commentary in the ENDS Report.
It is just David Cameron’s bad luck to have chosen to back a nuclear future for Britain at a moment when it is becoming increasingly unlikely that it will happen. And it is entirely appropriate that he should find himself doing so in Paris since that is where the fate of DECC’s nuclear policy will be determined.
The idea of replacing Britain’s aging AGRs with Areva’s EPR was always inspired by a French government seeking to close an emerging decades long gap in domestic nuclear orders. The justification for British homeowners and businesses being forced to pay for a French industrial policy was a supposed electricity generation gap.
Without French nuclear power stations, Britons would be freezing in the dark by 2015 according to energy ministers. This was always nonsense but has been made totally ridiculous by several recent developments. EDF has now announced that it is going to extend the life of the AGRs. There are 30GW of new gas planned or under construction and the world is experiencing a ‘glut’ of gas according to the IEA. So long generation gap.
This is fortunate as it is now looking increasingly likely that there will be no new nuclear power stations in Britain anyway. For all their protestations to the contrary, it is clear that none of the non-French projects have much chance of going ahead. None of the proposers have the balance sheet strength to finance such risky, capital intensive investments in these increasingly risk averse times.
Even EDF, with the implicit backing of the French government – albeit a government that has just had its credit rating downgraded – will be having second thoughts. The French National Audit Office recently recommended dropping the EPR as too expensive. This repeated a recommendation made to Sarkozy two years ago by the former head of EDF, Francois Roussely, who saw no future for it.
In any case, the decision to extend the life of EDF’s existing fleet of reactors in France will put huge pressure on its capital budget over the next decade. So far, even the most ingenious officials in DECC have found it hard to come up with a convincing device to transfer the construction risk of the four new reactors from the French taxpayer to the British consumer.
Even the revenue risk cover is now looking somewhat less certain than it did a few weeks ago. It seems the Treasury has baulked at taking on the counterparty risk of the proposed CfD/FITs that were supposed to deal with this. It is now looking as if these will be regulatory instruments rather than justiciable contracts. Hardly a confidence booster for investors in risky, high capital, long-life projects.
Added to this toxic mix is a growing doubt about whether Centrica will take up its 20% option to participate in the EDF project. Centrica has a market capitalisation of about £15 billion. Its share of the new build would cost some £5 billion – assuming they were built on time and budget.
This is a very big bet on such a small balance sheet. Especially for a company with no previous experience of constructing and managing nuclear power stations. It is not hard to imagine that both the City and Centrica’s shareholders might find this a risk to big to swallow.
Britain’s current decarbonisation strategy is predicated on the construction of new nuclear. The consequence of DECC’s massively flawed and incoherent policy making is that its fate is no longer in British hands. The decision on whether or not new nuclear is actually built in Britain will be taken in Paris, not London. And very possibly by a new French President less in thrall to the nuclear industry.