The EDF Strike Price: You heard it here first

I see from what I understand is a very reliable source in the Times today that EDF will be ‘asking’ for a Strike Price of £165 in order to build their behind schedule and over-original budget 4 nuclear reactors in the UK.  Eagle-eyed readers will have noted that I predicted (with a lot of help from Prof. Steve Thomas of Greenwich University and Peter Atherton of Citi group) that the Strike Price would be £166 (here).  I thought when I  put pen to cyber paper at that time that this would be a top-end estimate, and top-end it has turned out to be. It is of course an ‘asking’  price, and in any normal negotiation the Government would be quite bonkers to go for anything like such a level; but we live in strange times.  Certainly, an estimated £2.8 billion subsidy (sorry, I mean ‘underwriting-along-with-other-forms-of-low-carbon-energy’) per annum doesn’t sound like a cheap deal affordable to customers.

I was out by £1, of course. That could be because some negotiation has already taken place. Here’s what a mole has revealed to me about this.

(Door opens)

Two DECC officials and the Minister are sitting at a table. Enter representatives of EDF.

Mr De Rivas (for it is he): Good morning minister. Thanks for agreeing to negotiate with us on the  strike price for new nuclear. I can report to you that all is well. The plants will only cost about £7 billion each now and will be on-stream by – well at a push – 2021.

(EDF official coughs loudly).

De Rivas: Oh all right, 2022. How does that suit you?

Minister(smiles wanly) Well… you did say £5 billion and 2018…

De Rivas: Good, good. Well that’s sorted out then. We’ve had to do some sums, of course… trading conditions, that sort of thing.  And we’ve really pared this to the bone. We think £166  as the strike price would be very fair and reasonable under the circumstances.

Minister: (taken aback) No no, we can’t accommodate that. That would mean that we were tipping billions of pounds your way forever.

Mr De Rivas: Well I was afraid you might say that. After all we’ve done. Ah well. Zut alors! It’s just not to be, then. Come on guys, we’ve got a taxi to catch.

Minister: (looking anguished) No, no come back! Look , we’ve got to negotiate this. There are others you know.

EDF officals and Mr De Rivas collapse laughing.

Mr De Rivas: (wiping his eyes) I think the vernacular expression on the street is ‘yeah, right.’

Minister: Look, how does £165 sound?  We’ve got to look after the public interest, after all. It would help us greatly if…

Mr De Rivas: Done! Thanks guys. Now, that taxi.

 (Exit EDF team)

Minister: (to officials) I think we have been…

Advertisements

2 thoughts on “The EDF Strike Price: You heard it here first

  1. Yes, the deal done before officials recorded the meeting is where the limited option was realised; no cards to play with, no back-up plan, because treasury has the firm hand – called the Joker – nuclear by any means possible including price.

  2. Alan,

    Assuming that it’s £165/mWh, that’s 16.5p/kWh which is rather a lot for wholesale electricity at today’s prices, equivalent to a 10p/kWh subsidy, similar to other low carb technologies (Am I right?) But also if the wholesale price rises over the lifetime of the nuke, then the subsidy element falls. It’s quite a neat idea, but it does seem very generous considering that once a nuke is built the operating costs are low. Is the strike price index linked to RPI?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s