Renewables groups question the fairness of EDF’s Hinkley deal

The approval of the UK government funding scheme for the Hinkley Point C nuclear power plant has been welcomed by the industry and several associations. But some renewables bodies have questioned the fairness of the level of public funding for the north Somerset plant.

The European Commission earlier this month approved the state subsidy scheme Contract for Difference (CfD), offering EDF Energy a set price for 35 years in return for building the GBP16 billion plant; EDF would be guaranteed GBP92.50 per megawatt hour over the plant’s lifetime, twice the current price of electricity, and paid out of household energy bills.

Peter Haslam, head of policy at the Nuclear Industry Association (NIA), said construction could now “begin in earnest” once EDF concluded its investment decisions. “We are pleased this has been approved, it’s another important step in the progress of the project,” he said.

Haslam believes the Commission’s ruling – which relates specifically to Hinkley – is likely to foster confidence in nuclear build in the UK.

“This particular decision only affects Hinkley,” he said. “But it’s pretty clear that other companies in the industry will find this encouraging.”

The decision was also welcomed by Energy UK , the trade association for the energy industry. “New power stations and new types of electricity generation all come at a significant cost to today’s and tomorrow’s consumers,” said a spokesperson.

“Investing for energy that is always there at the flick of a switch must be balanced with affordability for all users and long contracts – such as Hinkley – make the end result fair for consumers and clear for investors.”

However, the Renewable Energy Association (REA) has questioned the way in which CfDs are issued across low-carbon and renewable sectors. The REA says that smaller and independent renewable energy companies will struggle to compete under existing rules. Its main issue is that 3.5 times the budget has been delivered to more expensive technologies, something an REA spokesman said showed how “ministers have failed to deliver value for money for consumers.”

The NIA robustly maintains that CfDs are necessary and benefit many renewable technologies. “The government is keen to point out they are not providing subsidies to nuclear power,” said Haslam. “We are not the only industry getting CfDs, a whole range of low carbon technologies, such as offshore and onshore wind receive them too.

“CfDs are important if you are looking to invest in low carbon technologies. You need to give confidence to investors that they are getting a return on their investment. The difference between nuclear, renewables and the gas and fossil fuel industries is that they are capital intensive projects, with low fuel costs. It’s the opposite situation with gas.”

The Department for Energy and Climate Change (DECC) also takes a strong line on the necessity of CfDs.

“Long-term contracts encourage investment in new, low-carbon generation,” said a spokesman. “CfDs work by stabilising the prices received by low carbon generation, reducing the risks they face, and ensuring that eligible technology receives a price for its power that supports investment. CfDs will be available to a wide range of low-carbon technologies, supporting investment in established and emerging technologies, and encouraging competition between these technologies as we make the transition to a low-carbon generation mix.”

Dr Gordon Edge, director of policy at Renewables UK, described CfDs as “a decent instrument” but cautioned that his industry perceived an imbalance in how future funding was distributed. “Our members can see a pipeline [of funds] up to 2020, but at the moment there is no visibility of growth after that. But the nuclear industry gets a cheque for the year 2023. That feels little bit unfair,” he said.

“With wave, tidal and offshore wind, you need to give a stronger steer as to what the deployment ambitions are. DECC suggests that in the 2020s whoever delivers the cheapest low carbon technology wins, but you can’t just let it rip like that. It wouldn’t be fair. When you are talking about building up supply chains and new skills you can’t leave these things to chance, you want to give some clear direction.”

Rod Sinden, operations director at the Utilities Intermediaries Association (which represents third parties that facilitate energy purchasing contracts between suppliers and consumers) felt the ruling had to be made in favour of the deal, but that it was not necessarily ideal.

“The decision has been made at the wrong time, it’s about 10 years too late,” he said. “It’s a political decision. The factors that started the debate off have changed, the economics have changed, the prices have changed. The issue is that once you start introducing subsidies, everybody else wants them.

“But they had gone so far down the line that you look at what would happen if you went back on it. You would probably run out of energy.

“We can’t wind the clock back, but you do wonder what the result might have been if you couldn’t collect taxes through the energy market. I suspect we might be closer to finding the true price of energy.”

The Energy Networks Association takes a neutral position on the Hinkley ruling, as it and its members will enable any technology necessary to be connected to the grid. The issue of CfDs does not impact on the association’s members and instead companies have separate arrangements with generators regarding the cost of connection and use of service.

Spokesman Matthew Pringle said that nuclear presents no specific engineering issues. “Technical challenges are more likely to arise from intermittent sources of low carbon generation such as wind and solar, and there is a huge amount of innovation ongoing to ensure the network can handle increased fluctuations in supply,” he said.

The European Commission’s Hinkley ruling is to be challenged by the Austrian government at the European Court of Justice (EU), but Haslam is confident this will not delay construction.

“The Austrian government has a long history of opposing nuclear development, so some initiative from them was to be expected. But the Commission came to its decision after a long process so we can be confident that the arguments for their decision were robust.”