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Are We Missing the (Hinkley) Point?

It’s been a tense time in the energy sector recently, with the furore over rising energy bills and accusations of profiteering taking over national headlines. Each successive announcement of price hikes has further soured consumer feeling, and eyes have turned to the government in search of some decisive response.

22nd October 2013    |     Peter Rolton: Chairman, Rolton Group

Ed Miliband has made his position clear, restating his pledge to freeze prices should the Labour party win the next General Election and denouncing the increases made so far. Meanwhile, the Conservative perspective appears to slink off in the other direction, as evinced by this week’s agreement with EDF for the construction of the two Hinkley Point nuclear reactors.

By setting a strike price of £92.50 per MWhr, fixed for 35 years after operation begins, what Osborne has actually done is admit that there is very little that can be done to stop the upwards trajectory of fuel costs, which is a far cry from his claims that the deal will provide affordable power for families. Instead, what this agreement cements is the fact that consumers have ahead of them another decade of year-on-year price rises that far outstrip their means, either because energy companies will have an excuse to raise bills to meet the estimation or because Osborne et al. have been misrepresenting their ability to keep prices down.

The nuclear strike price is another cause for concern, because although it is competitive with other low-carbon technologies in today’s market, it doesn’t kick into action until 2023. This means that as support for other sources drops over time, it will come in at a comparatively high rate and stay fixed there for the contract period of 35 years. Nuclear will therefore be the most expensive subsidy for the end-user and does not represent the affordability Osborne is at pains to try to demonstrate.

This leaves me with the unsatisfactory conclusion that either the Chancellor doesn’t understand his maths, which I can only hope is an unlikely possibility, or that he isn’t coming clean about the deal’s long term implications. As the UK’s current flock of nuclear reactors shuffle towards retirement within the next decade or so, many grow increasingly nervous about what is to replace them. A collective sigh of relief wouldn’t have been a surprising reaction when the Hinkley Point deal was made, but it would be foolish to celebrate too soon before properly evaluating the facts.

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