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It's not just about nuclear it's about finance

October 29, 2013 1:24 PM
By Steve Coltman in Liberal Democrat Voice
Originally published by East Midlands Liberal Democrats

It's been a week since Ed Davey announced the deal to build a new nuclear power station. After a week's reflection the financing of this deal, especially by the Chinese, has become the biggest talking point. The cheapest way to generate electricity is with coal-fired power stations fuelled with open-cast coal from North America. Cheap, that is, if you ignore the environmental cost. Unless coal is handicapped by a carbon-tax, all low-carbon technologies will need subsidising. We don't have a free market in energy in this country, we dare not or the carbon-reduction targets will be thrown out of the window. It has to be a rigged or contrived market in some form. However, there is a right way to go about it and a wrong way.

The cheapest way to fund a nuclear power station is for the government to borrow the money and fund it directly. This is what we used to do and other governments still do. Governments can borrow more cheaply than commercial sources of capital, and this reduces the building cost of the power station and hence the cost of the electricity. There is a second advantage in this approach - it keeps the money within the UK economy. By allowing the French and Chinese to invest in Hinckley Point C, not only is the power station more expensive than it needs to be but the profits, (estimated at £1bn annually) will be repatriated to France & China to the detriment of our already dire balance of payments.

So why don't we fund it ourselves? The answer is not just that the government wants to get its borrowing down, it is pure misguided ideology. It is a simplistic Conservative belief that private investment is good and government investment is bad. It is one thing to borrow to pay revenue costs (a high road to economic disaster) but quite another to borrow to make a good investment. The government can borrow at about 3% and the return on the investment in Hinckley Point C has been estimated at about 10%.

After railing against the previous Labour government for its misuse of Private Finance Initiatives, we have done the same ourselves, for this is what this deal amounts to. It will leave a legacy for the next generation to pay over the odds for. It's not that nuclear is so expensive - even at £92.5 per Megawatt-hour it is cheaper that wind, solar and most other renewables, it is the way it has been financed that causes the economic damage.

There was a program on TV recently about the Ottoman Empire, which got into debt to western banks and ultimately collapsed and defaulted, but not before its creditors had grown rich on the Ottoman's debt. Do we want to find ourselves in a similar situation to the Ottomans one day and the politicians who have misgoverned this country these last few decades vilified by future generations?"

* Steve Coltman is Chair of both Loughborough Liberal Democrats and the Association of Liberal Democrat Engineers and Scientists