Britain needs cheaper infrastructure, not accounting tricks. The French utility EDF recently floated an eye-catching proposal to pay for a nuclear power station they would like to build in Britain. During the construction phase of this facility, before a single watt of power was delivered, they would like to impose an upfront charge on every household in the country. The figure floated — if a guesstimate — came out at £6 on each bill per year. The number of years? Let’s say 10. Now this may seem presumptuous, the idea of payment preceding delivery. The late infrastructure expert Martin Blaiklock used to liken it to a diner “being forced to pay for a meal at a restaurant before the restaurant has even been built, let alone served any food”. But there is a financial rationale for the proposal. You see with capital-intensive, long-life assets such as nuclear power stations, financing charges represent a substantial chunk of the overall cost that needs to be recovered. Charging upfront reduces this by avoiding the need to roll up interest during the construction phase, thus cutting the amount of compounded debt to be serviced and paid off during the life of the asset. So allowing the private owners to tax the public and the overall cost (and price of the eventually generated electricity) should come down. Sounds like a good deal? Well in these confused times, it may seem that way. With mountains of infrastructure to pay for, and limited government appetite, any ruse will do. But is it the cheapest deal for the taxpayer or customer? True, it’s a way of shaving the cost of private finance a bit. Whereas EDF’s current nuke under way at Hinkley Point in Somerset requires a weighted average cost of capital of 9.3 per cent, if you permitted the EDF tax (known in polite society as the “regulated asset base” model) with the next one at Sizewell, then that could fall to 6 per cent. What it doesn’t do is beat state finance. The UK government’s cost of borrowing is less than 2 per cent.
Business Telegraph 23rd June 2019 read more »
FT 23rd June 2019 read more »
Now EDF want us to pay for nuclear build cost overruns – tens of £billions down a nuclear black hole? EDF is angling to get the UK Government to commit to pay what could be tens of billions of pounds for cost overruns on the proposed Sizewell C nuclear power project. This is part of the so-called ‘Regulated Asset Base’ (RAB) formula it wants the Government to adopt to fund the double plant power station. RAB is usually used for purposes where cost overruns occur much less frequently than they do with nuclear power stations. Usually they do not involve any commitment by the Government to pay for cost overruns. Under this (RAB) system nuclear power is to be given a privileged position (certainly not afforded to renewable energy plant) whereby its costs are guaranteed to be paid by the electricity consumer before the plant even starts generating any energy. But not only that, EDF wants the Government to effectively guarantee that anything above cost overruns of 30% are borne by the Government (with the electricity consumer or taxpayer footing the bill). The system is claimed to save consumers’ money by allowing the project to be financed on ‘cheap’ Government borrowing rates. In reality, if applied to building new nuclear power plant, it is likely to do exactly the opposite and blow a great hole either in Treasury budgets, electricity consumer pockets, or both.
Dave Toke’s Blog 23rd June 2019 read more »
French energy giant EDF wants a government guarantee of help if a £20bn nuclear power station runs over budget. The firm is telling potential investors in its Sizewell C plant that it wants ministers to step in with a guarantee on the project, the Sunday Times reported.
City AM 23rd June 2019 read more »