Aug. 8 (Bloomberg) -- The U.K. will offer the best incentives for building nuclear power stations to companies that pledge their capital first, adding to pressure on utilities such as Electricite de France SA to agree on terms.
Charles Hendry, a government minister overseeing the effort to overhaul Britain’s aging electricity infrastructure, said support for nuclear power will be scaled back as the officials and executives gain experience in developing projects.
“We would expect the first of a kind nuclear reactor to have higher costs,” Hendry said in an interview at the Department of Energy and Climate Change in London yesterday. As more reactors are built, “one would expect to get economies coming through, cheaper reactors coming forward as a result of going through the learning curve.”
Britain estimates it must attract 200 billion pounds ($312 billion) by 2020 to replace atomic facilities as they retire, upgrade distribution grids and meet pledges to reduce fossil fuel emissions. Hendry’s department is locked in talks with EDF over the price it will pay for nuclear power.
EDF has said it will make a final investment decision by the end of the year. The German utilities RWE AG and EON AG already have withdrawn from the bidding. Hendry said he’s confident EDF will get what it needs to move ahead and that other investors are weighing entry into the nuclear program. He didn’t name them.
The U.K. is trying to encourage private investment without the help of public subsidies. It has ruled out subsidies for nuclear power, though the government said in 2010 it may take on some financial risks or liabilities for new plans. It will cut back subsidies for renewable energy over time, Henry said.
“Subsidy is not only there to provide long-term support to investors,” Hendry said. “A downward trajectory is an important part of that process, making sure the industry focuses on what needs to be done to bring down costs.”
The comments indicated confidence within Prime Minister David Cameron’s government that the investment will come through after a dispute last month between Chancellor of the Exchequer George Osborne and Energy Secretary Ed Davey on incentives for natural gas and renewables. The nuclear industry is pressing officials for more detail on the structure of support for atomic power in the U.K.
“It’s the role of the government is to get incentives right,” said Andrew MacFarlane, technical director for nuclear at Atkins Global, the U.K.’s biggest engineering consultant. “These are ultimately commercial decisions.”
Britain gets about 7.9 percent of its energy from nuclear plants and must replace most of those within the next two decades. Hendry’s department is changing the way the electricity market works to attract investment in low-carbon power generators including nuclear stations. Those changes will be embedded in an Energy Bill due to be introduced into Parliament by the end of this year and passed sometime in 2013.
Hendry said he isn’t concerned about EDF’s comment last week that it’s looking for further partners in the British project, saying that suggests enthusiasm for the industry from a broader number of companies.
“People have been surprised by the extent of interest,” Hendry said. “It makes sense for them to see if they can put forward a new and stronger consortium.”
Hendry said he also expects more companies to come forward to back the Horizon Nuclear Power program, which would follow EDF’s decision on building the U.K.’s first nuclear plant since the 1990s. RWE and EON pulled out of that group.
Horizon’s first reactor in north Wales could still be built on schedule in the early 2020s. French reactor builder Areva SA has said it may bid for Horizon together with China’s Guangdong Nuclear Power Group Co.
“We don’t want to see delays on the Horizon timescale,” Hendry said as crowds gathered across the street for Olympic beach volleyball matches. “I feel very confident we will find a company to take it forward. A consortium coming in now to take on Horizon will be significantly committed to making that happen. It is possible that we would end up with a timescale that’s faster than originally planned.”
EDF and government officials will negotiate the so-called strike price for new nuclear power plants by the end of the year. To ensure the Paris-based utility makes a final decision on a new reactor at the Hinkley Point plant, the U.K. must set a price between 95 pounds ($148) and 105 pounds a megawatt-hour in 2020, double the level power trades at today, according to Bloomberg New Energy Finance.
Nuclear needs to become the lowest cost low-carbon technology, Hendry said, noting that the government aims to get support for the offshore wind projects down to 100 pounds a megawatt-hour. U.K. power for next year traded yesterday day at 47.70 pounds.
Britain is one of just three western European countries still pursuing plans for new nuclear stations following the Fukushima disaster last year. Germany plans to shut all its atomic facilities by 2022. Safety enhancements have contributed to rising nuclear costs, leading to concern U.K. consumers may pay too much for new reactors.
A survey of eight analysts by Bloomberg News suggested a new reactor could cost 4.9 billion pounds to 7.5 billion pounds.
“We need to get twice as much investment in the next decade than we got in the last decade,” Hendry said. “We’re driven by an absolute obligation to get the investment to keep the lights on.”
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