By James Murray, Source: BusinessGreen

The government is today facing renewed calls for it to rule out specific subsidies for nuclear plants that would cover construction risks relating to new projects, after a group of leading energy academics warned that taxpayer could end up footing a multi-billion pound bill.

Writing in a letter to The Independent, a group of nine energy experts, including Dr Paul Dorfman of the University of Warwick, Dr Nick Eyre of the University of Oxford, Professor Tom Burke of Imperial and University Colleges, solar entrepreneur and author Jeremy Leggett, and Andrew Warren, director of the Association for the Conservation of Energy, argued that the new energy minister, John Hayes, is “considering a major u-turn in energy policy by giving a blank cheque to nuclear by “underwriting” construction cost overruns”.

In an interview earlier this month, Hayes, who is involved in negotiations with energy giant EDF over the level of financial support that will be offered to its proposed Hinkley Point nuclear power plants, said that he would look at the case for the government covering construction risk, adding that there was an “argument for considering how you imbue the market with sufficient investor confidence to get to where you want to go”.

The comments pave the way for a potential u-turn, given the government had said it would provide no “specific subsidy” to new nuclear plants – a commitment widely interpreted as meaning nuclear plants would receive no support beyond the planned contract for difference and carbon price mechanisms that also support renewable energy projects.

Hayes recently angered anti-nuclear protestors by declaring himself one of the most pro-nuclear energy ministers in history, at a time when he is supposed to be managing complex negotiations over the level of financial support EDF can expect for the Hinckley Point project.

Energy and climate change secretary Ed Davey was similarly criticised last week for weakening the government’s negotiating position by declaring that the long-running talks will reach a positive conclusion.

The group of energy academics and commentators said that any move to underwrite the construction risks would constitute a subsidy that could run to billions of pounds, particularly given both of the two nuclear reactors currently being built in Europe at the moment are badly over-budget.

“There are two nuclear reactors being built in Western Europe at the moment, one in Finland and one in France, and both are hugely over-cost and over-time,” the letter states, adding that both reactors were expected to cost €3bn and are now costed at “€6bn and rising”.

“Whatever one’s view of the risks and benefits of nuclear energy, it is clear that construction cost overruns are highly likely,” the letter states. “The taxpayer and consumer must not end up footing a multi-billion pound bill for what seem to be inevitable nuclear construction cost overruns.”

A spokesman for the Department of Energy and Climate Change (DECC) reiterated that the government would not provide a specific subsidy for nuclear power plants, but refused to be drawn on whether it would take on some construction risk from new projects.

“We are in preliminary discussions with EDF and Centrica about the potential financial terms on which they might go ahead with their Hinkley Point C project,” he said. “Our focus will be on delivering a fair deal for consumers, which is affordable, provides clear value for money, and is consistent with the government’s policy of no public subsidy for new nuclear power.

“There will be full transparency over the terms agreed. No commitments or final decisions have been made.”

The letter came as former energy minister Charles Hendry made his first intervention in the increasingly heated energy policy debate since he was sacked in the recent reshuffle.

In a thinly veiled attack on the chancellor’s pro-gas stance, Hendry endorsed DECC’s plans for a balanced generation portfolio, arguing the shale gas is unlikely to have a transformative effect on the UK’s energy market.

“Our future can’t depend on gas alone,” he wrote in an article for the Observer. “Shale gas can make a contribution (although not without community backlashes, I suspect), but cannot bring the UK the same benefits as in America, where consents are much easier and prices are kept artificially low by the lack of export facilities. As the International Energy Agency says, we may face a golden age for gas, but don’t assume it will be cheap. Last year’s energy price rises owed more to rising global wholesale gas prices than anything else, so betting the farm on shale brings serious risks of future price rises.

“Energy security can only be delivered with a mix of technologies,’ continued Hendry. “New nuclear helps to give energy independence. Renewables harness the exceptional resources of these islands. Carbon capture and storage creates long-term opportunities for coal and gas. But no single source is fully secure.”