EDF is angling to get the UK Government to commit to pay what could be tens of billions of pounds for cost overruns on the proposed Sizewell C nuclear power project. This is part of the so-called 'Regulated Asset Base' (RAB) formula it wants the Government to adopt to fund the double plant power station. RAB is usually used for purposes where cost overruns occur much less frequently than they do with nuclear power stations. Usually they do not involve any commitment by the Government to pay for cost overruns.
Under this (RAB) system nuclear power is to be given a privileged postion (certainly not afforded to renewable energy plant) whereby its costs are guaranteed to be paid by the electricity consumer before the plant even starts generating any energy. But not only that, EDF wants the Government to effectively guarantee that anything above cost overruns of 30% are borne by the Government (with the electricity consumer or taxpayer footing the bill). The system is claimed to save consumers' money by allowing the project to be financed on 'cheap' Government borrowing rates. In reality, if applied to building new nuclear power plant, it is likely to do exactly the opposite and blow a great hole either in Treasury budgets, electricity consumer pockets, or both.
This means that we will be paying out increasing amounts once the construction period overruns by more than around 20 months. It should be borne in mind that construction of a similar reactor to that planned for Sizewell C (and also Hinkley C), at Flamanville in France, has already taken getting on for 12 years to build, far longer than the original plan to complete in 5 years. Flamanville already has cost overruns of over 200% compared to the original budget.
It is not too difficult to calculate the approximate minimum impact of construction overruns. This is because, on a rule of thmb basis, construction costs are akin to a multiple of the time taken to build them, plus additions to cover the cost of borrowing money to finance costs already incurred. Essentially, you have to employ a team (very large one in this case) of workers to do the job, and the longer you have to hire them the longer you have to carry on paying them.
Let's assume that EDF choose a slightly less implausible time to build the project at Sizewell C project than they did for Flamanville. Say they chose 7 years. In that case (still implausible compared to what they usually take in the West), then it would take less than 2 years of costs overruns before the Government would be expected to start carrying the can for the cost overruns.
It's going to be a very big can.
I've been predicting for a long time that the Government would end up underwriting the costs of building nuclear power plant. It's likely to happen by stealth with Hinkley C anyway as costs mount, but in the case of Sizewell C, EDF seem to be going to get it written into the contract from the start.
Reference
https://www.thetimes.co.uk/edition/business/sizewell-budget-meltdown-could-hit-taxpayers-under-edf-proposals-wrjdkdx20
Under this (RAB) system nuclear power is to be given a privileged postion (certainly not afforded to renewable energy plant) whereby its costs are guaranteed to be paid by the electricity consumer before the plant even starts generating any energy. But not only that, EDF wants the Government to effectively guarantee that anything above cost overruns of 30% are borne by the Government (with the electricity consumer or taxpayer footing the bill). The system is claimed to save consumers' money by allowing the project to be financed on 'cheap' Government borrowing rates. In reality, if applied to building new nuclear power plant, it is likely to do exactly the opposite and blow a great hole either in Treasury budgets, electricity consumer pockets, or both.
This means that we will be paying out increasing amounts once the construction period overruns by more than around 20 months. It should be borne in mind that construction of a similar reactor to that planned for Sizewell C (and also Hinkley C), at Flamanville in France, has already taken getting on for 12 years to build, far longer than the original plan to complete in 5 years. Flamanville already has cost overruns of over 200% compared to the original budget.
It is not too difficult to calculate the approximate minimum impact of construction overruns. This is because, on a rule of thmb basis, construction costs are akin to a multiple of the time taken to build them, plus additions to cover the cost of borrowing money to finance costs already incurred. Essentially, you have to employ a team (very large one in this case) of workers to do the job, and the longer you have to hire them the longer you have to carry on paying them.
Let's assume that EDF choose a slightly less implausible time to build the project at Sizewell C project than they did for Flamanville. Say they chose 7 years. In that case (still implausible compared to what they usually take in the West), then it would take less than 2 years of costs overruns before the Government would be expected to start carrying the can for the cost overruns.
It's going to be a very big can.
I've been predicting for a long time that the Government would end up underwriting the costs of building nuclear power plant. It's likely to happen by stealth with Hinkley C anyway as costs mount, but in the case of Sizewell C, EDF seem to be going to get it written into the contract from the start.
Reference
https://www.thetimes.co.uk/edition/business/sizewell-budget-meltdown-could-hit-taxpayers-under-edf-proposals-wrjdkdx20