Lord Hutton, the head of the UK’s Nuclear Industry Association, has said the future of the country’s energy security is hanging in the balance over the outcome of nuclear talks between the government and EDF.
He’s not wrong. Rarely has so much of a country’s energy policy been at stake over a single deal.
EDF and the government are talking today in a bid to establish a strike price for the French energy giant’s proposed new nuclear plant at Hinkley Point.
EDF says the project is “shovel-ready”: all that is needed for them to sign off the deal is an agreement on the contract for difference, or strike price – the guaranteed minimum sum for which they will be paid for electricity generated from the plant.
And that’s where the sticking point is. It doesn’t take an economics genius to know that EDF will be going in with a bottom-line sum which it is not prepared to go under, just as the government will have a figure it will not go over.
Earlier this year EDF boss Vincent De Rivaz told members of the government’s Energy Bill Committee that he made no apology for trying to secure a “reasonable profit” from the strike price negotiations.
He said it was simplistic to assume that any company would enter strike price talks without planning to get a “fair deal”.
“Yes, we are going to ask for a reasonable profit. We are a force for good. It is time to respect investors,” he added.
The UK simply cannot afford to let EDF walk away from the table. If the Hinkley Point talks fail, the Department of Energy might as well tear up its nuclear new build programme.
Lord Hutton said there was “no Plan B” if the EDF talks failed and such failure would expose Britain “to many risks”.
Meanwhile, no-one will be watching the outcome of the talks more intently than Hitachi, which bought the Horizon nuclear new build project from E.ON and RWE last year.
A senior Hitachi executive in Tokyo today told British newspaper The Daily Telegraph: "EDF is the front-runner for us. We're watching the strike price conditions very carefully."
He went on to warn that although Hitachi is “committed to the idea [of nuclear investment in the UK], we're a private company. We're not tied. Without an acceptable plan we can't invest".
An “acceptable plan” means at the very least seeing a successful conclusion of the EDF talks.
Contracts for difference form a cornerstone of the UK government’s Energy Bill and Electricity Market Reform. The EDF deal is the litmus test for them and if the talks fail, investors across all forms of power generation will look very unfavourably indeed on the UK as a place to do business.
With as Lord Hutton rightly points out, no Plan B, failure really is not an option.