UK close to key deal on price of nuclear power

The Government has set a cap on how much it will pay for electricity generated by new nuclear power stations in its negotiations with energy giant EDF.

Despite clashes between EDF boss Vincent de Rivaz and MPs on the environment select committee last week over his nuclear plans, it is understood that ministers and the French group are close to agreeing the crucial 'strike price'. But a final deal is not expected until as late as February when the target had been the end of this year.

The strike price gives a guarantee to EDF, which is to build a new plant at Hinkley Point in Somerset, on the lowest payment the company will receive for its nuclear-generated power. Should the market price fall below this floor, EDF would be paid the difference, which nuclear's many critics argue is a subsidy.

This ensures that EDF and, later, other groups leading the nuclear roll-out have a guaranteed return on an investment which will see them spend billions on new power stations. There were fears that the agreed price could be as high as £165 per megawatt hour (MWh) but a senior source told The Independent that "anything above two figures won't fly".

Other renewables, such as offshore wind, are expected to cost less than £100/MWh. The Government doesn't want to be accused of overpaying for nuclear: successive administrations have argued that in the long-term it should be cheaper than other clean energy sources.

The source said the two parties were fairly close on price, which was substantiated by the way Mr de Rivaz last week described claims of a £140/MWh price cap as "absolute rubbish".

At the select committee hearing last Tuesday, Mr de Rivaz accused the Conservative Party's MP Phillip Lee of "jingoism" after the MP had claimed the strike price was set up to "pay an annuity to the French taxpayer for the next 40 years".

EDF is working with British Gas owner Centrica on the £14bn Hinkley Point plant, which the Government wants to start generating electricity by 2019 to plug an impending energy gap. However, Centrica's commitment is uncertain: there are fears it could pull out of the partnership.

This has been a rocky year for nuclear. German groups RWE and Eon decided to ditch their Horizon consortium, which was to spend £15bn on plants in North Wales and Gloucestershire. However, Japanese conglomerate Hitachi is closing in on a deal reported at anywhere between £390m and £600m to take over Horizon.

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