Ministers mull extra support for new nuclear at Hinkley Point

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How badly do ministers want a new era of nuclear power in the UK? At the moment it is not clear – but they will soon have to show their hand.

Negotiations have been going on for months with French power giant EDF Energy to agree a fixed “strike price” for its electricity. This complex “CFD” (contract for difference) is being set in the current energy bill and will be open to all generators of low-carbon energy.

But EDF is now in talks with the Treasury to receive further support, as we revealed on the front of today’s FT. The talks are still at a very early stage but are very much live.

The company is asking the government to underwrite some of the project’s financing, which could make it more attractive to third-party investors such as pension funds or Chinese state-owned nuclear companies. (EDF has been in talks with two such groups since Centrica finally pulled out of its joint venture last week – 9 months after we first predicted this would happen.)

The guarantee would be under George Osborne’s “UK Guarantee scheme”, set out last summer, which can provide backing for up to £40bn of crucial infrastructure.

One Treasury aide played down the idea that EDF was set to receive a guarantee on Hinkley Point. “It’s extremely unlikely indeed,” he said.

Yet this may prove only to be a negotiating position as the government seeks to play hardball in the parallel discussions over a strike price for future nuclear power.

The obvious difficulty, however, is that the coalition has repeatedly stressed there will be no public subsidy for new nuclear reactors – in contrast to other countries where it is pretty standard for governments to underwrite new reactors.

Ministers have insisted – to some scepticism – that the CDF price regime is not a subsidy because it is for all low-carbon energy and not just nuclear.

Likewise, they are acutely aware that they will need to guarantee other energy projects – new wind farms, perhaps – so that there is less perception of nuclear getting special support. Don’t be surprised, therefore, if more guarantees are given to other energy projects this year.

Sources insist that the guarantee would not be made until after the strike price is agreed; although clearly the two negotiations are not separate and could be agreed simultaneously.

Ed Davey, energy secretary, is at pains to avoid it looking as if the government is being taken for a ride, insisting “we will not do a deal at any price”. He told the BBC Today programme on Saturday that he had been sceptical of nuclear power in the past because it had come “at a very very high price”.

“They didn’t take into account the cost of decommissioning, they didn’t take into account the cost of waste disposal and frankly they got themselves in a position where they couldn’t walk away from the table.”

The talks come against a backdrop of sluggish economic growth and question marks over the government’s ability to keep the lights on into the 2020s.

Ministers have made the provision of new infrastructure a key plank of their growth strategy, but the results have so far been mixed.

George Osborne announced plans for £40bn of guarantees for major public infrastructure schemes last summer to help companies raise finance in challenging credit market conditions.

In December he said there had been more than 75 enquiries from the private sector. Of these, projects with a capital value of £10bn have been prequalified as eligible for consideration of a guarantee.

In his autumn statement speech in December Mr Osborne said he could confirm a guarantee to extend the Northern line to Battersea power station. There have also been discussions over guaranteeing the newThames“super-sewer” under the capital and a promise of a guarantee for new Crossrail rolling stock.

Yet in a parliamentary answer on January 18 – to a question from Labour MP John Healey – Sajid Javid, a junior Treasury minister, said no project had yet been guaranteed under this new “UK Guarantee Scheme”.

It took time to ensure robust assessment of such schemes, the minister pointed out, which is fair enough – but observers will expect to see more evidence of progress soon.

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