EDF

Behind the continuing negotiations on new nuclear in the UK one big question remains unanswered. Who is going to pay? Senior officials are concerned that the pressure to close a deal is undermining a sensible negotiating strategy by separating the terms – including the strike price and the issues of risk allocation – from the question of funding.

To grasp what is happening you have to understand the degree of desperation which now exists in Government to deliver growth. Growth is the justification of the whole economic strategy and of course the solution to the challenge of rising borrowing. Growth is seen as the only platform from which either coalition party can go back to the electorate. But growth is elusive and time is running out. Read more

Is it possible that while one Whitehall Department is constructing a “secret” crisis centre to deal with cyber attacks, another located less than a quarter of a mile away is preparing to sell part of the UK’s national infrastructure to the very people behind those attacks?

The establishment of a cyber security centre was reported by the FT last week. Anyone who doubts that its primary focus is the Chinese should read the report produced a couple of months ago by the specialist US consultancy Mandiant.

The company identified attacks originating in a building occupied by the General Staff Department of the People’s Liberation Army in Shanghai which had targeted 141 companies across 20 major industries. China has denied official involvement but has not yet agreed to stop the attacks.

Unfortunately no one seems to have mentioned these developments to Ed Davey, energy secretary, or EDF, the company which wants to develop new nuclear power stations in Britain. If the price and risk allocation for that deal is agreed, and Mr Davey has said that agreement is close, the next question is how the deal will be funded. EDF does not have the capacity to find the £14bn required and so has been looking to Chinese partners to provide much of the cash. Read more

Sizewell A (left) and Sizewell B (right), two generations of British nuclear power on the Suffolk coast

Sizewell A (left) and Sizewell B (right), two generations of British nuclear power generation on the Suffolk coast

Why is it proving so difficult to close the deal on new nuclear in Britain? In part, of course, there is the normal arm wrestling negotiation. This is focused on the so called “strike price” – an energy price below which the suppliers will get compensation from the state – and on the allocation of risk around a £14bn construction contract.

The UK government wants a strike price of around £65 to £70 per MWh which is high but probably politically defensible. They well remember that in 2008 EDF talked about a price of £45 per MWh. EDF now wants something between £95 and £100, but they can probably afford to accept the Government’s figure and still make a reasonable profit.

The allocation of the risks is even more important than the strike price. Unless the Government is careful it could end up pay enormous sums for capacity which is underused because cheaper supplies will be available to consumers. If the company gets it wrong, a bad deal would overhang its finances for decades. Read more

A number of well-sourced reports over the past two days suggest that, as predicted, we are on the edge of a deal for the construction of new nuclear power stations in the UK.

The champagne corks however are not quite popping either in Whitehall or in Paris. Read more

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The negotiations between the UK government and EDF over the contract terms for new nuclear development continue. As well as a sizeable gap on the strike price there is also disagreement on the distribution of risks. In some ways this is just a normal negotiating process but behind the meetings and the attempts at news management are two questions.

The first is whether the UK really needs new nuclear. Read more