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Government starts EDF talks to ensure Hinkley Point C investment

Energy secretary Ed Davey has confirmed talks have begun between the Department of Energy and Climate Change and EDF Energy/Centrica, to ensure an investment decision on Hinkley Point C is not delayed.

EDF Energy and Centrica have consistently said they will make their final investment decision on new nuclear reactors planned at Hinkley Point C before the end of 2012.

But with Contracts for Difference rates not set to be finalised until 2013 - and not available to generators until 2014 - the government is now inviting developers with pressing final investment decisions to come forward.

It has already opened talks with nuclear developers EDF and Centrica to provide them with some firmer guarantees in order to prevent the plans for Hinkley Point C collapsing.

Under the terms of the draft Energy Bill laid before Parliament today, the government would be able to issue a likely strike price for Contracts for Difference in advance of formalising the rate and introducing CfD in 2014.

What are contracts for difference?

The draft energy bill states: “CfDs will facilitate investment in low carbon generation through removing long term exposure to electricity price volatility.

“CfDs stabilise returns for generators at a fixed level known as the strike price. Generators receive revenue from selling their electricity into the market as usual.

“In addition, when the market price is below the strike price they also receive a top-up payment from suppliers for the additional amount. Conversely if the market price is above the strike price, the generator must pay back the difference.

This could lead to further criticism of the government as favouring the nuclear industry, but could also see other sectors boosted including windfarms or potential CCS projects.

The impact assessment for what the government describes as “investment instruments”, published alongside the draft Energy Bill, states that preliminary discussions with developers have shown that some would need certainty on CfD before making an investment decision.

It states: “Preliminary discussions with developers indicate that for some projects key issues will include certainty on terms of the CfD, including the contract duration, risk allocation, strike price and financeability.

“Anything short of a binding arrangement on these points is likely to be insufficient comfort to enable some developers to commit to a final investment decision ahead of full implementation of EMR. Any arrangement would be premised upon Parliament granting the necessary powers, and on securing any necessary State Aid clearances.”

EDF Energy welcomed the publication of the draft bill and reiterated their commitment to an investment decision by this year.

In a statement, the company said: “We, and our partners Centrica, plan to take our final investment decision at the end of this year. Continued momentum through parliamentary process and timely agreement on the reforms are vitally important for our decision. This is equally important for all other investors in low carbon technologies.

“This means that it is vital to reach a fair and balanced agreement on the Contract for Difference feed in tariff. This will provide clarity for the future price of electricity produced from low carbon sources.”

Green Party leader Caroline Lucas blasted the CfD system however, stating it exposed a “clear bias towards nuclear and gas”.

She added: “We know that subsidising new nuclear would fly in face of the coalition’s promise not to use taxpayer’s money for nuclear, yet no matter how much Ministers deny it, [electricity market reform] will gift EDF and other potential nuclear operators billions of pounds in subsidies over the lifetime of a power station.”

Energy secretary Ed Davey said: “Leaving the electricity market as it is would not be in the national interest. If we don’t secure investment in our energy infrastructure, we could see the lights going out, consumers hit by spiralling energy prices and dangerous climate change.

“These reforms will ensure we can keep the lights on, bills down and the air clean. The reforms will also be better for the economy, leaving us less vulnerable to rising global energy prices and supporting as many as 250,000 jobs in the energy sector.”

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