EDF and the government at odds over nuclear strike price

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26 October 2012, Nuclear, Solar, Wind

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Freelance energy journalist Tim Probert summed up the session with a pithy yet fairly accurate Twitter post describing the bargaining relationship between EDF and the government: "DECC: 'How much is it?' EDF: 'How much have you got?'"

At the heart of the negotiations is the strike price, a guaranteed price per MWh of electricity generated that would be received by EDF. In the contracts for differences (CfDs) context, this means that if the price in the market falls below the strike price, then EDF would be paid the difference.

The government is in a delicate position in its negotiations with EDF. It intends to have 16GW of new nuclear power in the UK by 2025; without this there is a grave danger of it failing to meet its European Union agreed carbon reduction goals. However, the French utility is the sole company - under the name of its jointly owned subsidiary with Centrica, Lake Acquisitions - that intends to invest in the two sites, each with a capacity of 1.6GW.

EDF's CEO Vincent de Rivaz firmly refuted the committee's insinuation that EDF had inflated its expected costs to build the plants. Instead, he insisted that the "perverse incentive" was not to inflate costs, but rather to have a transparent cost discovery process to show that nuclear energy is a competitive form of generation.

Over and above the price put on the table, Monsieur de Rivaz put it quite simply: "EDF's investment decision depends on the CfD price. Without this, there is no clarity, and EDF is relying on the government to be serious and provide such clarity." This is an issue of primary importance, as the ultimate cost to UK consumers will depend on the strike price for different types of low carbon technology agreed on in the forthcoming electricity market reform bill.

At the evidence session the strike price for nuclear was repeatedly compared with the expected and desired long-term cost for offshore wind at GBP100/MWh, as offshore wind would be the main renewable alternative in the absence of nuclear. Despite uncertainties as to what offshore wind will cost by 2020-25, it was made clear that nuclear is, and will be expected to be, competitive with respects to offshore wind, and its strike price may be capped at GBP100/MWh.

Source: MarketLine

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