A ruinous price will be paid for Britain’s scandalous failure in energy policy
By Paul Homewood
h/t Patsy Lacey
I have a lot of respect for Jeremy Warner, who, unlike many of his contemporaries, uses his critical faculties.
He writes in the Telegraph:
Energy policy in Britain has been a self-destructive mess for as long as I can remember, and by the look of it, things may be about to get messier still.
The resignation of Thomas Piquemal as chief financial officer at EDF has been widely depicted as another, potentially fatal, blow for the planned Hinkley Point nuclear power station in Somerset. Would that it were so, for this eye-wateringly expensive and wholly unnecessary folie de grandeur has long deserved to be scrapped.
Unfortunately, Mr Piquemal’s dramatic exit may, by removing one of the last remaining obstacles to the required project finance, act in precisely the opposite manner. Mr Piquemal has been an opponent of the £18bn investment all along, arguing that EDF can ill afford such a high risk project at a time when the same technology is facing multiple challenges and cost overruns at Flamanville in Northern France and Olkiluoto in Finland.
Coming on top of the priority of nuclear renewal in France, Mr Piquemal feared that the additional burden of Hinkley might be the ruination of EDF, if indeed such an outcome is not already pre-baked. Never mind Hinkley, judging by the share price, which has lost nearly 90pc of its value in the past eight and a half years, investors already anticipate massive dilution by way of bail-outs by the French state.
But let’s not worry unduly about EDF’s financial travails; it is the ruination of the British consumer, and thereby the competitiveness of the UK economy, that should concern us most. The UK government has bent over backwards to accommodate EDF, underwriting much of Hinkley’s construction cost and guaranteeing an inflation-proofed strike price of approximately double the going rate for wholesale power.
When it became obvious that even this degree of gold-plating still wouldn’t be enough to persuade EDF to finally commit, Downing Street gladly welcomed in Chinese, state-controlled partners, kowtowing to Beijing as if Britain’s very future depended on it. In so doing, the UK Government has promised China its own nuclear power station on UK soil.
If Britain had subcontracted its civil nuclear programme to the Ayatollahs of Iran, it would scarcely have looked more humiliating or as potentially dangerous for national security. Indeed, the whole wretched endeavour long ago lost all touch with commercial reality and seems instead to have become an exercise in international diplomacy, with Britain’s energy future playing the role of bargaining chip.
To understand the origins of this madness, you have to go back to the errors in UK energy policy that started under Tony Blair and Gordon Brown, and were then reinforced throughout five years of Coalition government. All this is charted by David [Lord] Howell, an energy secretary under Margaret Thatcher, in a brilliant new book published this week – Empires in Collision: The green versus black struggle for our energy future.
Post-Chernobyl, there was a public backlash against new nuclear plants, which essentially put paid to the fleet of pressurised water reactors originally announced by Lord Howell back in the first year of the Thatcher government. Only one of them – Sizewell B – was ever built. With the advent of plentiful North Sea oil and gas, the rest of the programme was quietly forgotten.
The Chernobyl disaster put paid to a new generation of nuclear power plants Credit: ZUFAROV/AFP/Getty Images
The global warming agenda changed things anew. Wind power alone, it was quickly appreciated, would be insufficient to provide Britain with the low carbon future it aspired to; without new nuclear plants the UK would struggle to meet its emission targets. The upshot was that Labour began to nuance its previously intransigent opposition to new nuclear power stations and eventually ended up with a kind of fudge; if the private sector could off its own back finance a new generation of reactors, the government wouldn’t stand in the way. EDF was amongst the first to offer up its services.
From the start, the whole scheme was complete fantasy. There is a good reason why the private sector won’t on the whole finance nuclear power stations, and that’s because they are too high risk, and the capital payback too long term, to be suitable for private investment. Almost by definition, this is the kind of infrastructure which can only be undertaken by the state.
In any case, with the chilling example of the Channel Tunnel – where investors and bankers lost virtually everything – to act as a warning, there was never any prospect, in the absence of suitable state guarantees, of the private sector bank rolling a new generation of nuclear power stations. That didn’t stop EDF disingenuously selling the case. Oil and gas prices would soar, they insisted, making nuclear economic.
The Channel Tunnel acted as a warning of the dangerous of private money backing long-term public projects Credit: AFP
Once UK energy policy had hitched its wagon to the EDF locomotive, it proved impossible to get off. More and more demanding did the French goliath become, resulting in an eye-wateringly generous strike price and a degree of state guarantee which puts the taxpayer on the hook for much of the risk in any case.
Even now, the Franco/Chinese combo is balking, though frankly, it is quite hard to see how much more, bar a blanket state guarantee of the whole endeavour, they can be offered by way of inducement. And if that were to be the case, the British state might as well build the whole thing itself anyway. At least UK firms might then get a fair crack at the contracts.
What goes around comes around, and gas is now as cheap as chips again. EDF has been squeezed between the ever rising costs of its outdated technology on the one hand, and low oil and gas prices on the other. Ironically, the programme Lord Howell announced in 1979 of nine new reactors was torpedoed by exactly the same pattern of events.
With no new nuclear build in sight, the Government is belatedly turning to gas as a possible stepping stone, as well as a standby for the intermittent nature of wind. Having subsidised wind to the hilt, the Government is now in the absurd position of having to subsidise the new gas plants as well. Virtually all the assumptions applied to UK energy policy have proved disastrously wrong. Thanks to shale, there’s an oil and gas glut. Complicated incentives for the construction of substitute gas plants have flopped, and a real power supply crisis is opening up three years ahead. The incompetence of planning is quite breathtaking.
Compare and contrast this article with the sort of pap we get from little Emily Gosden, supposedly the Telegraph’s Energy Editor.