15 May (NucNet): A “contract for difference” (CFD) policy needs to be in place in the UK if potential investors are to consider building new nuclear power plants, executives from RWE and E.ON told the House of Commons Energy and Climate Change Committee today.
The executives said potential investors in new nuclear will need to know what electricity price is going to be guaranteed to them and who will guarantee it. One of the issues the committee wanted to discuss was electricity market reform (EMR), which could provide the stability investors have been asking for.
Tony Cocker, chief executive of E.ON UK said he thought the UK was putting in place the right structure and that the CFD is “the fundamental policy”.
“We need to focus on the precise mechanism of the CFD and the strike price so that final investment decisions can be taken,” he said.
The CFD is a long-term contract with a fixed price for power that is used to provide certainty for new energy projects such as nuclear plants that need high capital investment and a long lead-time.
The contract uses a strike price and when the market electricity price falls below the strike price the counter-party pays the electricity generator the difference. Conversely, when the market electricity price being earned by the generator is above the strike price, the generator pays the counter-party the difference.
Energy minister Charles Hendry told the committee that the government is proposing that the UK National Grid, a private company, will be the counter-party for the CFDs.
Volker Beckers, group chief executive officer of RWE Npower told the committee that nuclear has very long lead times of eight to 10 years when “you don’t generate any trade revenue”. Mr Beckers said: “That’s a very nuclear specific issue and will cause concern for any investor. Any political framework must provide that long-term certainty for an investor. That’s crucial. EMR is addressing these points.”
The UK government said last week it would introduce EMR legislation. It said the planned legislation will give certainty to low carbon generators, enabling the “huge investment” needed to replace the UK’s ageing energy infrastructure.
The executives were also asked about their respective companies’ decisions to pull out of new nuclear in the UK and to look for a buyer for their Horizon Nuclear Power joint venture, which was planning to build nuclear plants at Wylfa on the island of Anglesey, north Wales, and at Oldbury-on-Severn in Gloucestershire.
Mr Cocker said the big issue for E.ON was the longevity of the return, but its cash flow had also been affected by the German government’s decision to phase out nuclear energy, which was resulting in lost revenues.
He refused to confirm whether or not there had been interest in Horizon from China, Japan and Russia, but said: “We are running a process and need to have confidentially.”
Mr Beckers said: “We are in conversations with potential buyers, but it would be premature to comment on who they are. A potential buyer has the flexibility to choose a reactor technology and can hit the ground running. They are buying into three years of development.”
