Monday 21 October 2013

12 Things you should know about Tory nuclear price-fixing subsidies

Just a few short weeks after deriding Ed Miliband's plan to cap energy prices for 20 months as "price fixing" and "interference in the market" the Tory led government has signed up to a ludicrous 35 year price fixing deal with the French state run energy company EdF, in return for the construction of a new nuclear power station at Hinkley Point C in Somerset.

The Rip-off deal

The deal that has been agreed is an absolutely astonishing rip-off for the British taxpayer. The UK government has guaranteed to buy electricity from the new reactor at £92.50 per megawatt hour, which is almost double the actual market rate. The difference between the market rate for electricity and the strike rate of £92.50 will be made up by the taxpayer using Contracts for Difference (CfDs). This means that the electricity consumer will be paying for their electricity twice; once by buying it on the electricity market, and again through the taxes necessary in order to pay for the price fixing subsidies.

Dr Paul Dorfman, from the Energy Institute at University College London has calculated that these CfD subsidies will cost the taxpayer around £800 million - £1 billion per year. Over the 35 year life of the contract this will add up to a taxpayer funded subsidy of  £28 billion - £35 billion, which is double the estimated £14 - £16 billion construction cost of the entire facility!

David Cameron is lying again

David Cameron has such a shocking track record of lying to the public that it's got to the point where if Cameron says something, it's pretty safe to assume that the opposite is true. If Cameron says the NHS is "safe" in his hands, we know that it is in danger. If Cameron tells parliament that the UK has been "bankrupted", we can be sure that the UK is still solvent, and if he says that the Hinkley Point subsidies represent "an excellent deal for Britain and British consumers", we can be sure that we're getting an absolutely atrocious deal.

How divorced from reality would you have to be to state that a deal to pay £28 - £35 billion in price fixing subsidies for a piece of infrastructure that cost £14 - £16 billion to build represents an "excellent deal"?

Tory hypocrisy

I've already written a lengthy article exposing Tory hypocrisy over their opposition to Ed Miliband's energy price cap policy, so I'll be brief here.

If you are incapable of seeing how hypocritical it is to slag off Ed Miliband as a "price fixer" and "market rigger" for planning a 20 month maximum energy price to help electricity consumers, then within weeks agreeing a 35 year deal that guarantees a minimum energy price (at almost twice the natural market rate) to help energy producers, then there is something terribly wrong with you.

Ed Davey's spectacular U-turn
Ed Davey has certainly changed his tune since he sent out
this press release in 2006.
The Liberal Democrat energy secretary Ed Davey has done a lot of bragging about this ludicrous deal, but it is certainly worth considering his boasts alongside some of his previous comments about nuclear energy.

Here's what Ed Davey said in a press release he sent out in July 2006:

"In addition to posing safety and environmental risks, nuclear power will only be possible with vast taxpayer subsidies or a rigged market"
Davey was also behind the production of a Document called "Where will Tony Blair hide his nuclear tax bombshell" which made several assertions about nuclear energy:
"Recent international experience of the cost of nuclear power shows it remains highly uncompetitive"
"nuclear power is unaffordable and unnecessary."
It is quite remarkable that a man that invested so much energy in opposing nuclear power and criticising it as environmentally risky and highly uncompetitive is now the energy minister responsible for pushing through this rip-off deal, and talking it up with statements like this:
"This is an excellent deal for Britain and British consumers ... It will increase energy security and resilience from a safe, reliable, home-grown source of electricity"
It is almost as if the man has absolutely no principles at all that can't be bought off with a six figure ministerial salary isn't it?

Ed Davey's lie

Aside from singing the praises of a scheme that he would have been bitterly criticising had Tony Blair announced it in 2006, Ed Davey is also guily of outright lying to the public. Here's what he said:
"For the first time, a nuclear station in this country will not have been built with money from the British taxpayer"
Even if we ignore the fact that EdF only agreed to build the plant on the condition that the UK government use money from the British taxpayer to subsidise the plant by paying over the odds for electricity, this statement is still factually inaccurate.

If we look at the policy announcement in which this statement is made, we see in point five that "Hinkley Point C had been pre-qualified for consideration for a UK Guarantee. EdF and HM Treasury are in discussions regarding the terms of a potential UK Guarantee".

What this means is that EdF will borrow the money to build the plant from the UK government. The government claim that these loans are designed to fund infrastructure projects that have stalled because the commercial banks won't fund them. 

However if the market isn't lending, then government claims that these loans are being made "at the market rate" are utterly fallacious because these if the UK Guarantee loans were being made with the same conditions as the private banks, they wouldn't be made at all. If the market won't lend the money at a reasonable rate of interest, but the government will, then no matter what they claim, the government is clearly lending at below the market rate.

Not only will the UK taxpayer subsidise the Hinkley Point C project by paying over-the-odds for electricity for decades to come, they also look set provide EdF with a cheap supply of cash for them to build it in the first place. This means that Ed Davey is either lying through his teeth when he says that the British taxpayer won't be funding this project, or he is so incompetent that he doesn't even understand the details of the deal that has just been agreed, nor the UK guarantee negotiations that are ongoing.

Subsidising the French government

EDF is 85% owned by the French state. This means that the French state will be the main beneficiary of this price fixing deal to pay way over the odds for electricity. Perhaps the French state will use the profits from this energy price rigging scheme to reduce the cost of energy for French businesses and French households?

The Chinese are coming

The fact that the state owned China General Nuclear Power Group is set to have a 30% - 40% stake in the Hinkley Point C consortium means that French state won't be the only foreign government to benefit from this energy price rigging scheme.

The UK is already dangerously over-reliant upon the Chinese manufacturing sector (after decades of industrial decline in the UK, imagine how badly the economy would be hit if the flow of Chinese imports was slowed down or stopped), so handing the Chinese government control over our energy infrastructure too seems like an insane move, unless the objective is to deliberately weaken the standing of the UK on the world stage.

The Inefficient state hypothesis

The fact that the Tory led government are so delighted with the "deal" they've signed up to illustrates one thing absolutely clearly, that their privatisation agenda is a sham. It is an article of right-wing faith that the private sector is always more efficient than the state sector, however this stance is completely undermined by the fact that the UK is now reliant upon the French and Chinese states to build our energy infrastructure for them. If privatisation is necessary because the UK state is too "inefficient" to run its own energy infrastructure, then how on earth are the state sectors of other countries not riddled with the same kinds of inherent inefficiencies?

If the private sector is so efficient, why are there no private sector players lining up to out-compete the French and Chinese states? The answer is obvious. The whole idea that the private sector is inherently more efficient than the public sector is an obvious hoax.

The absurd right-wing free-market mantra that the private sector is inherently more efficient than the state, which was introduced by Margaret Thatcher and endlessly repeated by all of her successors, has left the UK in the ludicrous position where it is now reliant upon a country with a left-wing government and a communist regime to build its energy infrastructure for it, because the private sector has mismanaged the UK energy sector so appallingly over the last couple of decades.

Instead of signing deals with the French and Chinese governments to build our energy infrastructure for us, surely it would make more sense if the UK government built it themselves. If it was done that way, then at least there would be a veneer of democratic accountability to the project.

Privatised energy infrastructure

The problem with the idea that the UK should fund and build its own energy infrastructure is that so much of it has been sold off that we no longer actually have the means to do it. Take the existing nuclear infrastructure; John Major's Tory government sold off 8 nuclear power plants in 1996 for the astonishingly small fee of £2.1 billion. These facilities were run by a consortium called British Energy for a few years before they were taken over by EDF in 2009.

When these plants were sold off on the cheap, the UK state gave away its nuclear expertise to the private sector at a bargain basement price, then a few years down the line this expertise was handed over to the French state. Is it not amazing that eight fully functional nuclear plants were virtually given away for £2.1 billion, and now the UK is using price fixing measures to subsidise the French and Chinese states to the tune of £28 - £35 billion to build us a new one, and stumping up the cash for them to build it as well?

David Cameron has been bragging on about how many British jobs this price fixing scheme will create, but this is starkly contrasted by EdF themselves, who claim that most of the work can't be done by British companies because the UK energy market has been so badly neglected over the last few decades.

Here's what Ken Owen, the commercial director for nuclear new build at EdF said:

"There are a lot of critical components where quite frankly the UK has lost its capability. We don't mind that because we know there is capability from a global perspective"
The only parts of the contract that British companies are any good for according to EdF themselves, are the "muck shifting" elements. 

Had the UK invested in its energy infrastructure instead of flogging it all off on the cheap, perhaps Britain wouldn't be languishing so far behind high-tech economies?

Swimming against the tide

By commissioning new nuclear facilities the UK government is swimming against the tide. With the Fukushima disaster still ongoing, the Japanese are understandably keen to end their reliance upon nuclear power, but the French and Germans are also turning against nuclear power too. Germany has committed to ridding itself of nuclear power altogether, and even the nuclear fixated French are determined to reduce their reliance on nuclear power from 75% to 50% of their national capacity after a series of expensive cock-ups and nuclear shutdowns.

Perhaps such a massive investment in the nuclear industry might make some kind of economic sense if the UK still had a nuclear industry of their own and they were pioneering some kind of new nuclear technology, with a view to building up their national expertise and exporting nuclear technology to other countries, but using rigged energy prices to bribe the French and Chinese into building a nuclear power station for them makes no economic sense whatever.

Dirty technology 

The nuclear lobby loves to pretend that nuclear waste is
safely stored in high-tech underground facilities, but the
reality is that hundreds of thousands of tons are stored
in the form of Uranium Hexaflouride in open air facilities
like this.
As much as the nuclear lobby love to dress their industry up as clean and modern, the evidence is absolutely clear that it is a dirty and dangerous technology.

We only need to look at the ongoing catastrophe at Fukushima in Japan, which is still leaking radioactive waste into the ground and the sea two and a half years after the tsunami that crippled three of its reactors.

Even if we tell ourselves that tsunamis, earthquakes, other natuaral disasters or terrorist attacks are impossible in Somerset and look beyond the Fukushima disater, there's still the problem of nuclear waste.

Plutonium has a half-life of around 24,000 years meaning that it takes 120,000 years to become 3% as radioactive as it is today (still too dangerous to handle). Considering the fact there have been several major radiation leaks in the last few decades alone, the idea that the nuclear industry is capable of safely storing highly radioactive waste for over 100,000 years would be laughable if it were not so scary.
It is estimated that there are hundreds of thousands of tonnes of highly radioactive nuclear waste in temporary storage facilities all over the world. The only country in the world that is taking their responsibility to safely dispose of this waste with any degree of seriousness is Finland*. The rest of the world are happy to continue producing tens of thousands of tons of radioactive waste every year, without even bothering to plan for its permanent disposal.

For more detail on the nuclear waste problem see this article.

 Who will pay the clean-up costs?

One of the big issues that remains completely unanswered is who will be bearing the enormous cost of decommissioning the site at the end of its productive life, and who will be paying for the storage of the radioactive waste? The official government policy document makes absolutely no mention of either of these issues, so it is fairly safe to assume that under the Tory economic ideology of "Privatise the profits and nationalise the losses", the taxpayer will end up paying for the decommissioning and waste storage on top of the tens of billions in low interest loans and price-fixing subsidies that the government are so desperately obfuscating about.


The slightest amount of scrutiny shows us that this is an appalling deal for the UK taxpayer, which has tied them into paying over the odds for electricity for decades. The total cost of these energy price fixing subsidies looks set to dwarf the actual cost of the project.

The fact that the UK is now reliant upon the French and Chinese governments to construct its energy infrastructure is a damning indictment of the neoliberalisation process that saw our energy infrastructure transferred into the private ownership (mainly foreign interests) that neglected to invest in the infrastructure in pursuit of shareholder profits and lucrative executive salaries, safe in the knowledge that eventually the UK taxpayer would be forced to pay for the construction of the infrastructure that they couldn't be bothered to.

Now that the UK government's hand has been forced after two decades of private sector neglect, the fact that they have turned to the French government, and to communist China to build it is a crystal clear demonstration that the beloved
"private sector efficiency" mantra of the Tories is nonsensical and economically toxic gibberish.

The fact that this vast 35 year energy price fixing deal has come just weeks after the Tories bitterly slagged off Ed Miliband for proposing a 20 month energy price freeze must surely be one of the most brazen displays of Tory hypocrisy in history.

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