FREE markets are not popular at the moment, and Britain is home to more than most. Known for its famous—or infamous—“light-touch” regulation of financial services, it is a pioneer in other areas too, with one of the most liberalised energy markets in the world. Supporters argue that this has allowed Britons to enjoy low energy prices for over a decade. Detractors say it has led to price swings, robbed the government of direct influence over energy policy and made grand plans for expanding nuclear power and renewable energy hostage to the hard-nosed decisions of profit-seeking private firms.
So there were sighs of relief in official circles at the announcement on September 24th that EDF, a French power giant, would pay £12.5 billion ($23.2 billion) to buy British Energy, the firm that runs most of Britain’s remaining nuclear-power plants. The deal had stalled in July when two of British Energy’s biggest shareholders argued that EDF’s offer undervalued the firm in an era of high oil prices. But prices have fallen since those heady days, and EDF’s new offer of 774p per share is only 9p higher than its old one. Centrica, a British energy firm, hopes to take a 25% stake in the newly-merged firm, in the hope of reducing its own exposure to fossil-fuel prices. That would also spare ministerial blushes by sticking a Union Jack-patterned fig-leaf over a deal that hands control of Britain’s existing nuclear power plants to a firm that is 85% owned by the French government.
EDF has been among the most vocal lobbyists for a British nuclear renaissance; British Energy offers it a beachhead in what it hopes will be a growing market. It is less interested in British Energy’s existing reactors (most of which are old and unreliable) than in building new ones on the sites they occupy, probably at Sizewell in Suffolk and Hinkley in Somerset.
The British government is keen too, in order to show that it is making tangible progress with an energy policy which has become steadily more pro-nuclear as carbon emissions have risen and worries over security of supply have grown. Ministers hope that EDF’s trailblazing will encourage other companies to build reactors too. Indeed, one condition of the deal is that, once planning permission has been granted for new stations on the sites EDF has chosen for its own efforts, it will sell some remaining land to competitors. Sir Adrian Montague, British Energy’s chairman, said the deal was “the linchpin of a new nuclear future”.
Cynics look instead to Britain’s chequered nuclear past. Sizewell B, its newest plant, was completed in 1987 after one of the longest planning inquiries ever. So painful was the process that ministers abandoned plans for other stations of the same design. New fast-track planning powers are intended to prevent such delays in future, but economic questions remain. Nuclear plants are expensive to build and must run constantly, so they are vulnerable to changes in electricity prices. Five years ago British Energy had to be rescued from bankruptcy by the government after a long period of cheap power.
Ministers insist that nuclear power will not be subsidised, meaning that investors must rely on power prices remaining high for decades. Not everyone believes the government will stick to its guns. John Hutton, the business secretary (whose department is responsible for energy), worried this week that unless the government ensured “the right climate for investment”, firms might choose to put their money elsewhere. Put less politely, says Dieter Helm, an energy economist at Oxford University, the private sector has the government over a barrel: “It’s a good investor’s bet that the government will change its policy,” he says, possibly by extending some form of carbon-free energy subsidy to nuclear power or perhaps even by guaranteeing a minimum electricity price.
Decommissioning plants and disposing of waste pose a particularly tricky question. The bill for dismantling existing reactors stands at around £74 billion over 130 years. Ministers insist that the private sector will pay the clean-up costs for the new plants it builds, but it is hard to see how—nuclear decommissioning is an infant industry, and the time span involved in waste disposal is beyond the likely lifetime of any private firm. Those literate in Whitehall-speak point out that official documents say only that firms must bear their “fair share” of costs—and that a “share” usually means less than 100%.
So there were sighs of relief in official circles at the announcement on September 24th that EDF, a French power giant, would pay £12.5 billion ($23.2 billion) to buy British Energy, the firm that runs most of Britain’s remaining nuclear-power plants. The deal had stalled in July when two of British Energy’s biggest shareholders argued that EDF’s offer undervalued the firm in an era of high oil prices. But prices have fallen since those heady days, and EDF’s new offer of 774p per share is only 9p higher than its old one. Centrica, a British energy firm, hopes to take a 25% stake in the newly-merged firm, in the hope of reducing its own exposure to fossil-fuel prices. That would also spare ministerial blushes by sticking a Union Jack-patterned fig-leaf over a deal that hands control of Britain’s existing nuclear power plants to a firm that is 85% owned by the French government.
EDF has been among the most vocal lobbyists for a British nuclear renaissance; British Energy offers it a beachhead in what it hopes will be a growing market. It is less interested in British Energy’s existing reactors (most of which are old and unreliable) than in building new ones on the sites they occupy, probably at Sizewell in Suffolk and Hinkley in Somerset.
The British government is keen too, in order to show that it is making tangible progress with an energy policy which has become steadily more pro-nuclear as carbon emissions have risen and worries over security of supply have grown. Ministers hope that EDF’s trailblazing will encourage other companies to build reactors too. Indeed, one condition of the deal is that, once planning permission has been granted for new stations on the sites EDF has chosen for its own efforts, it will sell some remaining land to competitors. Sir Adrian Montague, British Energy’s chairman, said the deal was “the linchpin of a new nuclear future”.
Cynics look instead to Britain’s chequered nuclear past. Sizewell B, its newest plant, was completed in 1987 after one of the longest planning inquiries ever. So painful was the process that ministers abandoned plans for other stations of the same design. New fast-track planning powers are intended to prevent such delays in future, but economic questions remain. Nuclear plants are expensive to build and must run constantly, so they are vulnerable to changes in electricity prices. Five years ago British Energy had to be rescued from bankruptcy by the government after a long period of cheap power.
Ministers insist that nuclear power will not be subsidised, meaning that investors must rely on power prices remaining high for decades. Not everyone believes the government will stick to its guns. John Hutton, the business secretary (whose department is responsible for energy), worried this week that unless the government ensured “the right climate for investment”, firms might choose to put their money elsewhere. Put less politely, says Dieter Helm, an energy economist at Oxford University, the private sector has the government over a barrel: “It’s a good investor’s bet that the government will change its policy,” he says, possibly by extending some form of carbon-free energy subsidy to nuclear power or perhaps even by guaranteeing a minimum electricity price.
Decommissioning plants and disposing of waste pose a particularly tricky question. The bill for dismantling existing reactors stands at around £74 billion over 130 years. Ministers insist that the private sector will pay the clean-up costs for the new plants it builds, but it is hard to see how—nuclear decommissioning is an infant industry, and the time span involved in waste disposal is beyond the likely lifetime of any private firm. Those literate in Whitehall-speak point out that official documents say only that firms must bear their “fair share” of costs—and that a “share” usually means less than 100%.
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