Constellation and EDF split: what does this mean for British nuclear?

Can new nuclear energy be developed in the UK without government subsidies? This question has been rumbling on in the UK ever since the coalition government agreed to allow nuclear power stations to be replaced “provided that they receive no public subsidy”.

At first it was assumed this was a convenient way to shelve plans for new nuclear building, which the Lib Dems have long opposed. After all, how could companies embark on something as big and expensive as new nuclear building without government money?

But back in July, Chris Huhne, the Lib Dem energy secretary, changed the tone of that debate when he told the FT:

Nuclear will go ahead if investors come forward with proposals, as I think they will. It’s very clear to me that nuclear is going to play a part in the energy mix, precisely because of the commitments that we’ve made in the coalition agreement.

Suddenly nuclear was back on, and people began to predict that companies could fund new nuclear plants on their own. In fact, for those paying attention, private companies had said from an early stage that new nuclear was possible without subsidies. This is what Vincent de Rivaz, the EDF’s chief executive in Britain, said in May:

The commitments from the coalition government envisage a proper role for nuclear and have reassured us at EDF, as we contemplate the very serious investment we are proposing to make in nuclear power in the UK.

But EDF may be feeling a little different now, after its US partner, Constellation, pulled out of a project to build a new plant in Maryland.

Constellation was financing the scheme using a loan guarantee from the government. But when it discovered the cost of that guarantee, the company blanched. The wording of the company’s letter to the US energy department makes fascinating reading (emboldening is ours):

We were surprised to be presented with a shockingly high estimate of the credit subsidy cost that we and our partners would have to pay the US Treasury in order to obtain the loan guarantee: 11.6%, or about $880m. Such a sum would clearly destroy the project’s economics (or the economics of any nuclear project for that matter).

For its part, DECC insists companies remain keen on building new nuclear capacity. But if Constellation is right, and such a project is economically unfeasible even with government subsidy, how can it be economic without it?

The UK government will have to hope the slightly simpler regulatory framework in the UK, where there are no state government to compete with the national one, will encourage private enterprise to take bigger risks. But the collapse of the EDF/Constellation project should provide a warning that no matter how much reassurance ministers receive from CEOs, the future of UK nuclear power is far from certain.

(H/T to Nick Grealy for the idea for this post.)

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