Cover-up! how consumers will be forced to pay for cost-overruns for Sizewell C construction

In a historic change of policy the Conservatives have  announced that consumers, not EDF, will pay for cost overruns in building Sizewell C. The crucial phrase in the Government’s document on the so-called ‘Regulated Asset Base’ (RAB) model is ‘Cost overruns that were not excluded from the RAB would be shared between investors and consumers through suppliers’ (para 47 page 14). Note: ‘consumers’ means electricity consumers who will have to pay twice for Sizewell C; extra on their bills long before any power is generated and for many years after generation begins. The inclusion of cost overruns on consumers’ bills means that their bills will rocket upwards even before they receive even a single kWh in supply from Sizewell C .

The RAB document was produced alongside the Government’s new Energy White Paper.

This should be compared to the Government position in the 2011 White Paper which stated that ‘new nuclear stations should receive no public support unless similar support is available to other low-carbon technologies’. (page 8)

Under the Government’s RAB proposals it is claimed that clear criteria are going to be set for what cost overruns will be payable by the consumer and what by the developer, with the outcomes carefully monitored by a ‘Regulator’. But of course once the construction juggernaut for Sizewell C starts rolling where information, not to mention armies of lawyers and hired consultants of various sorts, will be controlled by EDF, I do not seriously believe that EDF will be stopped from passing on virtually whatever costs it wants to pass on to the consumer. It is not even certain that the  ‘Regulator’ will be able to stop costs of building (the still uncompleted) Hinkley C being passed onto the consumer through the books assigned to Sizewell C- that is given that workers are likely to be switched from one operation to the other.

In other words, it is a blank cheque for EDF for a power plant that is not only unnecessary but which will actually cause large quantities of renewable energy to be wasted because of nuclear power’s inflexible operation (see our report on this). In effect not just consumers but renewable energy operators will be paying for the cost-overruns of building Sizewell C. Laughingly, in a world where no (at least western) nuclear power plant has been attempted this century without massive construction cost overruns being generated, the RAB document talks about ‘low probability risks such as cost overruns above a certain threshold’ (page 12). In the case of Hinkley C the cost overruns are mounting already.

The most charitable explanation for the RAB document is that Treasury officials are allowing themselves to be engaged in an exercise of self-deception in order to launder a policy that if stated plainly would be deemed politically unacceptable. Reading between the lines of the RAB document and the Energy White Paper itself, the only substantial barrier stopping EDF being handed a blank cheque contract is the payment that EDF would receive for electricity generated. The White Paper says ‘We expect the sector to deliver the goal it set for itself in our Nuclear Sector Deal, published in 2018, to reduce the cost of nuclear new build projects by 30 per cent by 2030’ (page 49).

So in other words the Treasury wants EDF to accept less than £65 per MWh in 2012 prices. (2012 prices, the year in which Hinkley C’s contract was priced is the funny money basis for electricity contracts these days!). Obviously EDF wants more, but with the RAB mechanism it may not need more.

This is because RAB mechanism is a piece of political jelly that will allow any nuclear developer to offer to complete Sizewell C for a low sum when in reality British electricity consumers will pay for what will be called ‘cost overruns’ over and above such a figure.

The RAB mechanism is a flexible political device that allows Sizewell C to be built regardless of cost realities. It is an act of public manipulation and mystification worthy of the best traditions of ‘Yes Minister’.

But even so these plans are likely to cause mounting opposition when consumers realise they are likely to have to start paying extra on their bills without getting any electricity in return. Then they will have to pay extra again for the power when (evenutally) it does start being generated.

Professor Tom Burke, the founding Director of E3G commented: ‘Constructing Sizewell will cost just over £20 billion. If EDF borrow this money it will double the cost to over £40 billion. EDF is negotiating with the government to make consumers pay the construction cost in advance by a levy on everyone’s energy bills. They will then have to pay again for the electricity which will still be more expensive than that from renewables.’

In effect consumers will have to pay twice for the project – first for several years before the plant has generated anything, and then again for up 40 years afterwards.

by David Toke

.