In reaching its nuclear deal with EDF Group, the big French state-controlled utility, and opening the door to financing from China, the British government signaled that whether in terms of environmental concerns, consumer prices or Britain’s long-term energy independence, the free market alone no longer served the national interest.
“This government is facing a looming energy crisis in this decade thanks to years of neglect and underinvestment,” Edward Davey, the British secretary of energy and climate change, said at a news conference in London.
Britain has been gripped by growing worries about its future power supplies, with supply falling and prices rising. Electric utilities have been reluctant to invest in new gas-fired plants to replace dirtier coal-burning ones because of many uncertainties — including a new energy bill winding its way through Parliament and the growth of subsidized wind and solar energy projects.
Mr. Davey said that Britain would need to replace about 60 percent of its generating capacity “in a relatively short time,” as Britain closes coal-fired plants to meet its climate-change objectives of cutting greenhouse gas emissions in half by 2025.
The country will also gradually close its mostly aging collection of nuclear plants, which now produce 19 percent of Britain’s power. Only one of the plants, Sizewell B, which was finished in 1995, has modern technology.
The twin reactors envisioned in Monday’s announcement are to be built at Hinkley Point, in southwest England, which is currently the locale of two 1970s-era reactors. They would advance the government’s goal of adding more low-carbon sources of energy, but the project will come with a huge price tag. It is the kind of long-term project, with an even longer horizon for paying for itself, that private investors alone would be unlikely to undertake. The overall costs of building the plants is estimated at £16 billion, or $26 billion, in 2012 terms.
To reduce the investment risk, Britain and EDF are bringing in two state-backed Chinese companies, the China General Nuclear Corporation and the China National Nuclear Corporation. EDF also says it is talking to other investors that may take as much as a 15 percent stake.
The Chinese companies will take a stake of 30 to 40 percent in Hinkley Point. According to EDF, which is working with the two Chinese companies on nuclear power stations in China, the companies will be “strategic and industrial partners” in the project and will be given the “opportunity to gain experience in the U.K. and will support their long-term objective of becoming leading developers in the U.K.”
But at the news conference, Henri Proglio, EDF’s chief executive, played down the Chinese role, saying that EDF was in charge along with the French reactor designer Areva, and that British companies would be assigned more important roles.
That EDF alone cannot finance the plant “highlights the complexities of modern nuclear power projects,” said Antony Froggatt, an industry analyst at Chatham House, a research institute in London. He said that it would be “better to invest in other” alternative sources of energy like wind and solar power.
Consumers will also wait a long time to receive electricity from the new nuclear plants, which EDF says will provide power equivalent to 7 percent of British consumption and enough to power almost six million homes. If EDF makes its final investment decision in summer 2014, the first of the two Hinkley Point reactors will not begin producing power until 2023.
British consumers and taxpayers will pay much of the bill. EDF will be guaranteed a price per megawatt hour of £89.50 to £92.50 — about $144.50 to $149.40 — for 35 years. Those prices, to be fully indexed to inflation, would be almost double current wholesale power prices.
Analysts say the terms may wind up being generous for EDF, which says it will make a return of about 10 percent from the project.
Vincent de Rivaz, chief executive of EDF Energy, the company’s British arm, said that any cost savings would be shared between investors and consumers.
The British government may have had little choice if it wanted to sign a deal at this time. Other potential suppliers like Hitachi of Japan are considered years behind EDF in their technology.
Nuclear power has attractions. Unlike renewables like solar and wind it produces steady, reliable power for decades. But the upfront costs are huge and there is no payoff for a decade or more.
It is difficult to persuade a provider to build a nuclear plant without some guarantee, particularly now, when the emergence of shale gas in the United States and the growth of renewable energy in Europe are creating uncertainty about power prices.
And while Hinkley Point will not begin providing power for 10 years, the high costs of the plant will inevitably stoke the debate about rising energy bills in Britain. Even as the deal was being struck, millions of Britons were learning of increases in energy charges, including more than three million customers of NPower, a utility that announced on Monday that it would increase electricity prices by 9.3 percent and gas prices by 11 percent.
“This is a terrible deal for billpayers,” said Caroline Lucas, a member of Parliament for the Greens, who called for an investigation by the National Audit Office, a spending watchdog. “At a time when the costs of renewable energy are falling, it’s reckless for the government to subsidize the nuclear industry in this way.”"