Politicians have grand objectives and set policy in train to deliver on them. Then so often unfold the unintended consequences.
The privatisation of the electricity supply industry in 1979 offered one delicious example. The then Chief Executive of the state-owned Central Electricity Generating Board John Baker had announced in 1988 that the board would be building one nuclear power station a year for the next ten years – an extraordinary and incredible ambition, derived from nothing more than institutional hubris.
Ten years later, Margaret Thatcher had come to power determined that nationalised industries should be privatised. Needless to say, not a single nuclear power station had been built in the previous decade. But the proposed new commercial electricity supply industry could be relied upon to deliver the goods…..
Privatisation means going to the City to arrange the sale of said nationalised industries. Establish their value, enumerate the risks, set the price. But when it came to the nuclear power stations, the bankers raised their hands in horror. The capital cost! The back-end liabilities! It was out of the question for the private sector to take on such a burden.
So it was Margaret Thatcher who inadvertently exposed both the high initial cost of nuclear power, and the role of the state in shouldering the enormous costs of decommissioning and dealing with the nuclear waste. And the electricity black hole was filled by a generation of gas-fired power stations built in record time by the private energy companies.
Now fast forward to 2007. Vincent de Rivaz, chief executive of EDF’s UK arm, made the now-infamous promise that by Christmas 2017 we would be cooking our turkeys using energy generated at Hinkley C nuclear power station. Ho hum. Is this another example of institutional hubris? EDF – 85% owned by the French state – has multiple problems with its nuclear reactors at home which are suffering a type-fault. EDF has also been instructed by the French government to take over Areva which has been responsible for the building of a new nuclear power station in Finland. It was started in 2005, and is now billions of euros over budget and with no end in sight.
As a result, EDF is seriously strapped for cash. In January EDF announced a 68% drop in net profits and a cut in its dividend, with Chief Executive Levy reporting that the company is still looking at the “financial equation” for funding its own two-thirds stake in Hinkley. He admitted: “We have a number of constraints.” In early March, the rating agencies are suggesting that, if EDF were to commit the billions needed to build Hinkley C, its rating would be downgraded to reflect the financial risks to the company that it would entail.
One of the unions representing EDF employees, has also raised concerns over pending legal cases being brought by the Austrian and Luxembourg governments and by a consortium of European renewable energy generators over whether loan guarantees offered by the UK government constitute illegal state support.
And then at the end of February, the UK’s biggest energy lobbying group, Energy UK (of which EDF is a member), announced a major shift in strategy. This will see it campaigning for renewables, reductions in energy demand, and regulatory changes to support electricity storage projects that help balance the peaks and troughs associated with wind and solar generation.
Are we seeing a new set of unintended consequences unfold? Another Tory government commits itself to a major nuclear power programme (the Chinese government is EDF’s partner to deliver Hinkley C and other plants on the east coast). The financial burden of that programme is revealed once again as being far too high even for a power company backed by the French and Chinese governments. The delays are such that the black hole will have to be filled by plant that are fast to build and deliver low carbon electricity at a price that will not bankrupt state industries.
Is this what will create the space of new renewables on a large scale, requiring the Conservative government to reintroduce the market subsidies that it has spent the last twelve months dismantling? Now that would be a delicious unintended consequence, wouldn’t it?