Bloomberg News

EDF Nuclear Plants Get Boost From U.K. Low Carbon Funds

November 23, 2012

The U.K.’s plan to collect 7.6 billion pounds ($12 billion) for low-carbon projects by 2020 would advance Electricite de France SA’s nuclear plants and add about a third to consumer electricity bills, analysts said.

The sum, announced yesterday by the Department of Energy and Climate Change, will help pay for the 1.1 billion pounds of support a year needed to build two European Pressurized Reactors made by Areva SA (AREVA) for use at EDF sites in England, as well as renewable plants, according to Credit Suisse Group AG.

European nations seeking to meet climate change targets have adopted mechanisms that reward generators of low-carbon power, paid for by consumers on their electricity bills. Leaders from the U.K. to Germany are debating the costs that burden imposes on consumers as they pursue goals to lower emissions. British Energy Secretary Ed Davey tripled the sum utilities can collect from consumers in 2020, which amounts to 9.8 billion pounds after inflation.

“The key uncertainty is, can the capacity be delivered, and will there be a consumer backlash once customers actually realize just how much their electricity bill will be jacked- up,” said Lakis Athanasiou, an independent equity analyst in London.

The cap may add as much as 28 percent to consumer bills if the subsidies proposed were put in place on top of the existing levy and with a planned tax on carbon dioxide emissions, he said by phone. Davey’s announcement, made in advance of publication of energy legislation next week, prompted calls for Britain to monitor the effect on bills.

Cost Concern

“The government should ensure that those households and businesses most vulnerable to increased energy prices are protected,” John Cridland, director-general of the Confederation of British Industry, said in a statement.

The issue is particularly sensitive after utilities including SSE Plc (SSE) and Centrica Plc’s British Gas put up their charges for power and natural gas, blaming an increase in wholesale price and government environmental policies.

Davey said the impact of supporting clean technology accounts for 2 percent of customer’s bills and will grow to 7 percent, or about 95 pounds for the average home, by 2020. Savings from energy efficiency will counter part of that.

Credit Suisse said in its note that the levy “effectively allows” for a 150-percent increase in renewable subsidies in the second half of this decade.

Consumer Impact

“We remain skeptical, as the cost to be passed-through to consumers is high, and a return to economic growth or high fossil fuel prices is still required to keep the consumer impact manageable,” the bank said in a note to clients.

Based in Zurich, the bank said in earlier research that the cost of subsidizing renewables in Europe’s five largest power markets is becoming unaffordable for consumers and utilities who will share the 570 billion-euro ($739 billion) bill, at current values. Those markets are in Germany, France, the U.K., Spain, Italy.

The levy control framework pays for government programs to support renewable energy including the Renewables Obligation, feed-in tariffs and the contracts for difference that come into force from 2017. The “subsidy envelop” should allow the government to reach its goal to get 30 percent or more of its electricity from renewables by 2020, Athanasiou said.

EDF’s Plan

EDF Energy, planning atomic reactors in Somerset, southern England, said the contracts for difference that guarantee a price for power have the potential to unlock significant investment and jobs in U.K. infrastructure projects. Credit Suisse said Davey’s announcement was of particular importance for EDF Energy and Centrica Plc (CNA), which sought the arrangements.

A spokesman for SSE said, “We are pleased to see that the Levy Control Framework means that the U.K. will be building new power stations, including nuclear and renewables.”

The levy will help “diversify our energy mix to avoid excessive gas import dependency by increasing the amount of electricity coming from renewables,” DECC said in a statement. The department said it also will support new nuclear and carbon capture and storage projects.

The levy’s budget is currently 2.35 billion pounds for 2012 to 2013. For 2013 to 2014 it’s 3.18 billion pounds, and it’s 3.87 billion pounds in 2014 to 2015. The cap does not include efficiency measures called ECO and Warm Front.

To contact the reporter on this story: Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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