UK considers linking nuclear price deal to inflation

The government is considering linking the guaranteed price for electricity from new nuclear plants to inflation to sweeten a deal with EDF Energy, a senior industry source said.

“It’s not clear yet what measure of inflation (will be used) but it’s very rational for a nuclear deal,” said an industry source close to the discussion who asked not to be identified.

The government and EDF are locked in tough negotiations about the minimum price for electricity produced from the firm’s proposed Hinkley Point nuclear plant, Britain’s first new nuclear plant in several decades.

Britain wants to replace ageing power stations with new generation nuclear plants that will keep carbon emissions low.

Three consortiums have come forward with plans to build 16GW of new nuclear plants by 2025 but Japan’s Fukushima crisis and funding issues have delayed the programme.

The outcome of talks with EDF could set the tone for future energy infrastructure investments in Britain.

A so-called contract for difference (CFD) will mean EDF can count on a set price for its electricity but will have to repay the state if the market price rises above this level.

Linking the price to inflation will ensure it maintains value over time as inflation levels are prone to change.

“Negotiations are ongoing. Government is working closely together on these negotiations with EDF,” said a spokesman for Britain’s Department of Energy and Climate Change.

DECC is expected to publish CFD strike price details for offshore wind installations in the summer, an announcement that will shed some light on price levels the government is willing to set as money set aside for both will come out of the same budget.

The Energy and Climate Change Secretary said on Tuesday there was plenty of interest in investing in nuclear in Britain and not just from EDF. He said he had talks with representatives from Hitachi in Tokyo.

Hitachi plans to build four to six new nuclear reactors in Britain.

He also said there was interest from GDF Suez, Iberdrola, Toshiba Westinghouse and South Korea about investing in Britain’s nuclear future.

GDF Suez and Iberdrola own a joint venture that wants to add 3,600 megawatts of new nuclear capacity to Britain’s power market.