Ministers wrangle over state aid for nuclear power
We’ll send you a myFT Daily Digest email rounding up the latest UK energy news every morning.
Ministers at the top of the UK government are wrangling over how to support the multibillion pound development of a host of new nuclear power plants, with some senior Treasury officials hostile to direct state subsidy.
Philip Hammond, chancellor, and Greg Clark, business secretary, have both taken part in talks over support for new plants at Wylfa in Anglesey and Moorside in Cumbria, according to people involved in the process.
The government views the projects, each expected to cost more than £10bn, as crucial to UK energy security and tackling climate change: Britain’s coal-fired power stations are being phased out and existing nuclear plants are reaching the end of their lives.
Any deal would have to overcome opposition from parts of the Treasury, which has for decades resisted the idea of direct government investment in the expensive and risky business of building nuclear reactors.
However, the question of how to support UK nuclear power has been given new urgency by the financial crisis at Toshiba, which is the main shareholder in the NuGen consortium behind Moorside.
“Discussions are moving forward,” said one person who has attended meetings involving the Treasury and the Department for Business, Energy and Industrial Strategy. “But the Treasury is the Treasury. They will always be more cautious.”
Another person involved in the process said that state support would have to be “financially engineered” in a way that avoided adding to public debt. This could still allow the government to buy minority stakes in the projects, or to provide credit guarantees.
A government aide warned that proposals for public investment were being pushed primarily by industry rather than ministers. While ministers were willing to look at all options, the work was at an early stage with no guarantee of agreement.
Two new reactors being built at Hinkley Point in Somerset by EDF of France and CGN of China went ahead only after the government promised a guaranteed electricity price of £92.50 per megawatt hour in 2012 prices, rising with inflation for 35 years. The current forecast for electricity prices on the open market is considerably less.
Critics say the UK has overpaid on Hinkley and that financing costs for future projects would be reduced if underwritten by taxpayers.
Toshiba is expected to spell out on Tuesday the full extent of an expected multibillion-dollar writedown on its US nuclear business and this could lead to its withdrawal from Moorside and other reactor construction projects around the world.
NuGen is pinning its hopes on a mooted investment by Korea Electric Power Corporation, which is owned by the South Korean government, to keep Moorside on track; a deal for Kepco to buy some or all of Toshiba’s stake in NuGen could be announced soon, according to senior people in the nuclear industry.
But even with Korean backing, NuGen is likely to need some form of government support to raise the billions of pounds needed for construction.
The same is true of the Wylfa project planned by Horizon, which itself is owned by Hitachi, in Wales. People involved in both projects acknowledge that their plants will have to be cheaper than Hinkley to be politically viable.
Government policy on nuclear power will also be in the spotlight ahead of the by-election on February 23 in Copeland, the constituency that covers Moorside and the Sellafield nuclear waste facility that employs thousands of people.
Labour leader Jeremy Corbyn said this month that he supported Moorside, where up to 20,000 jobs could be created. Rebecca Long-Bailey, his shadow business secretary, told the Financial Times that Moorside needed “public investment” and that the government should “step in immediately” to ensure Moorside and Wylfa go ahead.
“The delay we’re seeing under the Tories is leaving thousands of nuclear workers uncertain about their future,” she said. “Public investment in nuclear energy would bring huge benefits through the nuclear supply chain and energy security.”
However, the Conservative party, which is hoping to seize the seat from Labour, has highlighted Mr Corbyn’s past lack of enthusiasm for nuclear power in its campaign leaflets.
The Treasury declined to comment. The business department said it was “looking at options” for several proposed nuclear projects.
Six new nuclear power stations are at varying stages of planning in support of a government target for 14 gigawatts of new nuclear generating capacity by 2035, compared with 10GW in operation today. No new nuclear reactor has started generating power since Sizewell B in 1995.
This article has been corrected to change a reference from Sizewell C to Sizewell B