ITV News reports that Peter Atherton at Liberum Partners said in a note that he was ‘flabbergasted’ and ‘staggered’ by the government’s decision to sign taxpayers up to a deal of this magnitude.
This is despite ministers saying that the Hinkley C plant plans had to be approved as a way to ensure the UK meets its demands for power and does not fall short in energy supplies when coal-fired alternatives are decommissioned.
Government ‘taking a bet’
In his note, Atherton said: “Once again, the UK Government is taking a massive bet that fossil fuel prices will be extremely high in the future. If that bet proves to be wrong then this contract will look economically insane when HPC commissions.
“As far as we can see this makes Hinkley Point the most expensive power station in the world (excluding hydro schemes) on a per MW basis and also the plant with the longest construction period. By way of contrast, for the cost of £16 billion for the 3,200MW to be generated the UK could build 27,000MW of new CCGT gas fired power stations solving the ‘energy crunch’ for a generation.”
He said that the only winner in this scenario is EDF, the French energy provider that the government signed up to the Hinkley C Deal with.
EDF could make a return on equity of more than 20%, Liberum Partners said, and it could actually end up making as much as 35% in the long term.
The Hinkley C deal
The deal that sees the Hinkley C development start was announced by the government last week and immediately criticised by detractors.
The main point that critics looked at was the strike price, which is far ahead of current inflation rates. The price will be set at £92.50 per megawatt hour of electricity produced at the plant for 35 years from the time the plant comes into use in 2023.
Dr Paul Dorfman, of the Energy Institute at University College London, immediately criticised this deal, saying that the government had essentially locked in another levy on the bills of consumers, estimating that it will cost a collective £1 billion per year to fund the plant.
Others said that bills could continue to rise for the full duration of the contract because of the high strike price, leaving consumers facing 35 consecutive years of price rises.