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Will they or won't they? New nuclear hangs in the balance

A woman walks her dog near EDF Energy's Hinkley Point B nuclear power station in Bridgwater. Photo: REUTERS/Suzanne Plunkett

You can feel the power beneath your feet, conversation is difficult over the hum. Standing on top of the cap of the nuclear reactor at Hinkley Point you can feel how powerful the engineering is, looking around the power station you see just how sophisticated the engineering is.

That technology and expertise comes with an absolutely enormous price tag - an amount of cash that no company will sign up to on its own.

EDF, the French state backed energy company, has for years been preparing to build new nuclear reactors at Hinkley Point in Somerset, next to the existing power station.

They have the nuclear licence, thousands of tonnes of earth have been moved, hundreds of staff have already been working there, and with the final planning decision due the day before the Budget, the site is, EDF tells me, absolutely 'ready to go.'

And, the UK's looming gap in the amount of energy we need and the amount of energy we have available to use is no secret either.

You can hardly move at the moment for politicians searching for ways of getting growth going - the project at Hinkley could create up to 25,000 jobs, the amount of cash that would be spent would be even bigger than the Olympics. Ease the growth problem and help keep the lights on.

EDF have been preparing to build new nuclear reactors at Hinkley Point in Somerset. Credit: REUTERS/Suzanne Plunkett

So what is the problem? The government cannot agree either internally, or with the company on exactly the new reactors should be paid for. In most other industries a firm would find the money itself for such an investment.

But the cost of building new nuclear is so high, £7 billion per nuclear reactor, that no company would make a commitment like that on its own, especially because it is more than a decade before they would start to see a return.

In fact, this deal potentially locks EDF in for more than four decades.

The project at Hinkley would be more expensive than the Olympics. Credit: Anthony Devlin/PA Wire

Whatever you think of nuclear power, building new nuclear stations is a critical part of ministers' plans, so the government is willing to help by guaranteeing EDF a certain amount of cash for the electricity that will be generated at Hinkely if it gets built. But right now, the Department for Energy and Climate Change, the company, and the Treasury cannot agree on what is reasonable.

DECC is leading the talks, and in a sign of the priority the deal is being given, the new Permanent Secretary is taking a lead role. His department had been willing to guarantee more than 90 pounds per megawatt hour, for the 'strike price'. But the Treasury kicked back at that cost, and believes it should be more like 80 pounds.

George Osborne's officials are also anxious about the risks of the construction costs spiralling and the projects over running. Many nuclear experts warn that the taxpayer could end up on the hook for many billions, over several decades. Treasury sources say, "we can't just agree any price". Because EDF is backed by the French government, curiously, the British taxpayer could end up putting billions into the French taxpayer's pocket.

The deal could lock EDF in for more than four decades. Credit: Ian Nicholson/PA Wire

But company sources are clear, if the price is not right they will walk away. If the Treasury refuses to budge from a strike price of 80 pounds the deal might just not be worth while. They have to be able, not just be sure they will cover their own costs, but to persuade other investors to come in with them.

Sources say, 'everything hinges on the strike price...and it is currently on a knife edge.'

Although rumours of the deal being finalised before the Budget are being downplayed by the Treasury, EDF is already spending a million pounds a day on the site, and cannot delay a decision forever. Another industry source told me 'they are not crying wolf'. Just a few weeks ago their partners in the bid, Centrica, did walk away from the project because, as they told me, simply 'the numbers had changed.' It is certainly not impossible that EDF could do the same.

George Osborne's officials are anxious over risks the construction costs could spiral. Credit: PA Wire

That would not just mean the company has to write off the hundreds of millions of pounds they have already spent. It could also put off the other firm, Hitachi, hopeful of building new nuclear, whose interest was launched by ministers with an enormous fanfare.

It would also blow a big hole in the government's plans to deal with the very serious problems with our energy supply.

And, as the Budget approaches, the failure of this deal would be a lost opportunity to create thousands of jobs, and to move forward with a major infrastructure project, precisely the kind the government says it wants to encourage.

  • Watch Laura Kuenssberg's full report on the News at 10 on ITV.