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Huge nuclear subsidy shows Tory inconsistency on markets

After denouncing Labour's proposed two-year price freeze as "socialism", the government has just guaranteed EDF and Chinese state investors prices for 35 years.

David Cameron with Energy Secretary Ed Davey. Photograph: Getty Images.

One of the conditions of a new generation of nuclear power stations in Britain has long been that they receive no taxpayer subsidy. The Coalition Agreement stated:

Liberal Democrats have long opposed any new nuclear construction. Conservatives, by contrast, are committed to allowing the replacement of existing nuclear power stations provided that they are subject to the normal planning process for major projects (under a new National Planning Statement), and also provided that they receive no public subsidy.
But look at the terms of the deal on a new nuclear power station at Hinkley and it become clear that, by any reasonable measure, this commitment has been broken. The agreement guarantees the French-owned EDF and Chinese state investors a strike price of £92.50 per MegaWatt Hour (or £89.50 if a second plant is built), nearly twice the current market rate for wholesale energy. The price will rise in line with inflation and is guaranteed for 35 years. Should wholesale prices fall or rise at a slower rate than expected, it is the public who will pick up the tab in the form of higher taxes or higher bills. The Energy Institute at University College London estimates that the annual public subsidy will be £800m-£1bn.  
 
Coalition ministers are likely to respond by pointing out that the subsidy (although they dare not use that word) is lower than that for renewable energy, which is guaranteed a strike price of £135 per MwH (although for just 15 years), but a subsidy it remains. It prompts the question of why, if the deal is likely to prove profitable for foreign investors, the government isn't investing itself. Energy Secretary Ed Davey was unable to provide an answer on the Today programme this morning but he did pledge that "the majority of the 5,600 workers employed at Hinkley will be British", a commitment potentially at odds with EU law. 
 
And after the irony of red-baiting Conservatives welcoming investment from the communist Chinese, consider that observed by Labour this morning. The government that denounces Ed Miliband's proposed two-year energy price freeze as "socialism" has just guaranteed prices for 35 years. All markets are free, but some are more free than others.