Sizewell C - what'll it cost us? (part 1)

Spoiler alert: nobody knows; and it's not clear anyone cares who has agency in the matter[1].  We've written about aspects of this any number of times - see the tabs below if you're interested.

Recap on Hinkley Point C:  granted a long and very flexible CfD (there's an extraordinarily lax backstop date for start-up, which the government glibly extended when EDF requested, so it can't be reliably built into system planning - which negates the supposedly vital aspect of "reliable baseload power" which is nukes' raison d'être) with a handsome, index-linked strike price.  It doesn't even compel EDF to build the thing at all ! The one aspect that might have been seen as in our favour is that EDF bears 100% of any hypothetical the absolutely inevitable monstrous cost overrun.  But even that is irrelevant because again, when asked, HMG just gives them more money.

SZC:  EDF nonetheless vowed never again to do another nuke on HPC terms (wonder why..?), requiring instead that they be shielded from almost all construction cost risk[2], but again with no meaningful timetable for completion; and that they be funded throughout construction, even if over-running[3].  They also demanded their ongoing costs be met via the electricity price after they (hypothetically) commission the damned thing - it'll be something like a CfD with a rolling cost assessment setting the strike price: though for some reason HMG et al are loathe to use the CfD / strike price nomenclature.  Oh, and EDF have successfully demanded hard cash - billions - upfront from HMG to fund "development work" prior to taking the decision to go ahead, even after having said it'll be the same design as HPC AND they'd been working on it for 10 years already.

This subsidy approach is being delivered via a variant on the Ratable Asset Base (RAB) approach, beloved of US utilities for decades, the Thames Tideway Tunnel, LHR T5 etc etc.  Bottom line, we all get to pay in installments, starting right now.  Remind me again, when will it start up?  Say after me: Nobody Knows and Nobody Cares. 

Why was this agreed?  The ostensible reasons are:  (a) the nuclear lobby has persuaded successive governments we must have more nukes;  and (b) "it's much cheaper this way" - a material portion of the total HPC cost is financing charges.  [Why can't French-government-owned EDF finance more cheaply than the UK government?  Very good question.  Always bear in mind, though, that for the French the Whole Point of HPC and SZC is as part of their grand strategy to get other nations to contribute to their humungous nuclear liabilities - see this post from 18 years ago.]  

Oh, and over & above this notional cost saving via lower financing costs (real enough, if you accept the premise), they also promise cost savings via the cookie-cutter effect, because SZC will be the same design as HPC.  We return later to this delightfully simple notion confected for simpleton politicians.

You can readily research for yourself that when the damn' thing inevitably overruns its "budget" (hah!) the taxpayer + billpayer combo picks up most of the tab.  So what, then, are the incentives on EDF to keep costs down?  Errr ...   Seriously, this is a massive and excellent question we'll return to next time.

Here's the thing: in having thus devised featherbedding that's comfortable enough for feeble, state-owned EDF to be willing to go ahead and build the thing, it's equally attractive for other investors, who are joining the fun and taking equity.  Centrica et al are anticipating low-risk, double-digit returns in return for stumping up their own capital.  [HMG is taking some equity: but why not all of it, HMG with its even-lower cost of capital and endless ability to dump costs on bill payers?  Another good question - to which the answer is presumably: they don't like it appearing on the Treasury's books.] 

Yes, folks, it all smacks of desperation.  And there's nothing you can't (/ won't) do when you're desperate and you can write cheques on other people's accounts.

Coming next:  

• why SZC's "identical design" won't cost less than HPC
• what else does all this teach us?
• what other reasons might there be for the charade?

ND

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[1] Curiously enough, some of the people who care are (a) several of the rather diligent French authorities, and (b) the French unions.  They are ignored by the French government.

[2]  The HPC contract already substantially shields EDF from the risk of costs rising because of changing safety regs etc.  Obviously, the cost increases EDF wants to be protected against are those resulting from their own bad decisions, flawed engineering, poor project management etc - which have been legion at HPC. 

[3]  Most householders know you don't pay your builders up-front without stern performance conditions.  Of all the companies not to trust with this, EDF is up there with the dodgiest cowboys in the construction market, as all experience shows.  Never will the government be able to say "how could we have known..?"

Budget chaos - open thread

First things first: Jim wins the compo for most correct guesses at Budget content - by a decent margin, too.  Well done that man.  A (very temporary) job awaits you in Whitehall as official Reeves-whisperer.

The OBR-induced chaos is all very odd.  FFS, Reeves leaked half the Budget, in detail, yesterday - the 'final final' leaks, which once would have been anathema to Parliament and MPs' privileges on being first to learn these things, once jealously defended, not least by successive Speakers.  Hugh Dalton felt obliged to resign in 1947 for less (though some suggest the skids were under him already, and he was glad of the pretext to go).

Anyhow: obviously in the circs, Reeves / Starmer felt they couldn't do anything other than play to their own back-bench gallery.  Feeble politics though it is, I think we all understand.  How much time does it buy them?  Maybe enough, actually:  it might be nicely judged for that specific audience.

On the energy front, the EV levy was inevitable and we may expect it to rise over the years, to replace fuel duty.  (Did any EV user ever imagine otherwise?)  I'm interested in 'pay per mile' - does this mean they are tracking vehicle movements (like Musk and the Chinese do), or is it a self-declared matter on the income tax form?  I would have thought 'pay as metered' would be better - seeing as how smart meters can supposedly detect and discriminate different types of load.  But maybe home charging would represent an easy dodge, even with an SM.

I haven't yet seen the trailed shift of 'green levies' from electricity bills onto general taxation: and I believe they've ditched the idea of scrapping VAT on energy.  Will update when I find out.  Anyhow, it's pretty clear they've completely given up on the £300 bill reductions that were to be achieved via "cheaper renewables".  Not before time: Miliband really does have to ditch that crass rhetoric once and for all, and stop making his DESNZ officials parrot it every time they are asked about bills.

UPDATE:  here's at least part of the energy thing which, I reckon, needs more detail to make total sense of: 

She told the Commons: “The Conservatives’ ECO (energy company obligation) scheme was presented as a plan to tackle fuel poverty. It costs households £1.7 billion a year on their bills and for 97% of families in fuel poverty, the scheme has cost them more than it has saved. It is a failed scheme. “So, I am scrapping that scheme along with taking other legacy costs off bills. And as a result, I can tell you today that, for every family we are keeping our promise to get energy bills down and cut the cost of living with £150 cut from the average household energy bill from April. “Money off bills, and in the pockets of working people. That is my choice ... Not to leave working families to bear the brunt of high prices, like the Tories did. But to get energy costs down now and in the years to come.

So, yeah: no contribution from "cheaper renewables" (- how could there be?)  And on a quick calc (£1.7bn across approx 20m households), that's only £85.  So the remaining £65 must come from some other levy-tweaking.  We need yet another update.

UPDATE 2:  yes, it's a direct transfer of subsidies from bills to general taxation: easy when you know how. 

Energy costs will be reduced by the ending of the Energy Company Obligation, which is currently funded through bills, and through the government funding 75% of the domestic cost of the legacy Renewables Obligation for three years. This is on top of extending the £150 Warm Home Discount to a further 3 million of the poorest households.

So: 150 + 150 = 300 & they'll say they've delivered the £300 reduction promise - for "the poorest households", that is.  BUT, as I keep saying, Mili's manifesto claim was that it would be delivered by cheaper renewables!

UPDATE 3:  the EV tax - eVED - is indeed on a self-certify basis.  It is assumed that the 'honesty' rate will be 98.5%, based on the 1.5% default rate on VED.  Hmm.  That surely has to be optimistic: people pretty much expect to have their number-plate checked by ANPR these days, but who imagimes HMRC will check their milometer?

Have at it all in the comments.

ND 

Sizewell C post ... coming soon

As we await the Budget: our learned visitor Mr Wendland asked for a post on SZC and its subsidy regime.

I've done the reading, sir, and it's a-comin' soon ...

ND

Ukraine: Europe must step up, bigly

If taken at face value, the 28-point plan is clever[1].  In my assessment there's only one clause that, pragmatically speaking, should give Ukraine serious pause - and we're still talking "at face value" here, as well as "pragmatic" - and that's the surrender of the territory in the Donbas they still hold: it's militarily crazy.  But - on paper - there's even an answer for that.

BUT.  No-one but an absolute imbecile would trust Trump with their lives - or, likewise, Putin.  Neither man can be trusted to uphold even a full treaty.  We are well into "It is the last territorial claim which I have to make in Europe" territory.

Trump, presumably, will be telling Zelensky he either signs or forgoes US support.  Well, he's a negotiator (of sorts), he expects a bit of to and fro.  

To me, they key is that even were he a man of his word, Trump couldn't deliver the "US side" of this unilaterally - it requires Europe to fall in line.  No Europe, no G8 nor several other clauses in the 28.  So now is the time for Europe to step in with some serious bargaining: we've seen the clear limitations of Team Trump, who evidently can't see the weaknesses in Putin's hand.  Once, it seemed, the EC was capable of pretty hard-nosed negotiating - but that was before the pathetic showing over tariffs.  Surely, there's someone who knows how to play serious, calculating power-politics in the whole of the continent?  Surely?

Trump needs to pay for his Nobel prize, not only with serious ongoing support for Ukraine, but with a conditional set of levers on him and Russia explicitly granted to Ukraine - and Europe[2].  Russia needs to pay for all that territory it has illegally seized with an oversight regime and a structure of tripwires that will keep Putin within his (new) borders.

For completeness, let it be said that the indemnity mooted for Putin and his war crimes sticks in the craw.  But that, I think, is one for Zelensky to chew on.

Finally, you gotta laugh at the implicit belief, written through this plan, that tying Russia closer with TRADE will act as some kind of guarantor of peace.  Ask Merkel about that one.  And - just who was it it who pointed that out to Germany in the UN ..?  Yep, it was the Orange One.

So: where is Europe's unblinking hard man?

ND

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[1] 'Clever' in the sense that Witkoff, apparently an accomplished businessman but patently devoid of the slightest sense of geography, history, Realpolitik, naked evil, or his own extreme gullibility, has done a plodding, comprehensive job against a long list of desiderata: there's an answer for (almost) everything in there, provided you make a load of truly heroic and optimistic assumptions about some deeply untrustworthy individuals.  He's clearly in that archetypal category of naïve-but smart Americans who see no malice in anyone and proceed in a purely rationalistic manner to address all difficulties piecemeal and with diligence.  They often achieve big things (vide the grand history of the USA).  But there are some things that are completely beyond them.  

[2] How to define "Europe"?  Well, whatever is the body of entities that is required to deliver all those clauses, that can't be done by the USA unilaterally.  In fact, we could say "the other members of the G7" too, were that not to include China.

Mahmood, fairness, and blunt speaking

Has any politician from any parliamentary party - I include Reform - spoken so plainly and indeed bluntly in Parliament on the topic of illegal immigration and "asylum" as Shabana Mahmood?

The Tories, in particular, must be wondering why they didn't come up with a package of measures along the lines of hers, several years ago.

If Polanski wants to carve out a metro-bedsit-space on this issue for the Greens, well, he'll find it isn't as big in electoral terms as he imagines.  

[Gotta feel a bit sorry for "Your Party": they'd love to be all over this and use it as a recruiting sergeant - but they can't prise their own fingers away from the throats of their comrades long enough to write a press release.] 

Let's see how Labour splits when it comes to a vote.  Plenty of abstentions, but not so many outright 'noes', I'm guessing.  They know what their own constituents are saying: they just hope the matter doesn't get raised in Parliament and polite society.

Both sides claim to be guardians of the British Sense of Fairness.  My very early experience as a junior officer in the Army is that what the middle classes think of as 'fair' can be starkly different to what the workers think.  You can  stub your toe badly on that.

ND