Privatisation went ahead without the nukes. The sale of the fossil and hydro-generators was, on the face of it, immensely successful. But the new market had been designed deliberately not to send price signals that reflected the surplus of supply over demand. The mechanism that ensured the post-privatisation dividends and share prices of the new companies was called the electricity pool. This was dressed up to look like a market, with trading desks, trading screens and plenty of turnover. But it was a supply-side-only market, where only generators bid in prices, which were accordingly comfortable for all concerned. End-users and retailers were excluded.
Meanwhile, the more modern atomic plants were bundled into a company called British Energy, which successfully floated in 1995. But the company's viability was based on a dubious premise — the unrealistically high prices in the electricity pool. When in 2001 the pool was replaced by a two-way market, the price of electricity fell below £20 per megawatt hour (MWh) and British Energy's nuclear-generated electricity became uneconomic.
The government of the day had to act fast. It would not try to recast the energy market to eliminate price risk. But neither would it allow British Energy to shut down. The subsequent emergency restructuring cost the taxpayer £5 billion over three years, while shareholders were fortunate to get away with 2.5 per cent of their pre-crash equity. The government also took over the liabilities for decommissioning, spent fuel, etc: in the long term these are impossible to quantify, but £100 billion is a reasonable estimate.
That expensive fix will last until the remaining reactors reach the end of their working lives after 2020. While he was merely a posturing opposition politician, Huhne indulged the fantasy that old nuclear capacity would be replaced by renewables. But the Coalition Agreement expressed support for new nuclear power plants "provided that they are subject to the normal planning process for major projects...and also provided that they receive no public subsidy". The problem is that generating companies, even enthusiasts like EDF, will not build nuclear plants without extensive government guarantees. As well as the long-term liabilities, they are concerned about electricity price volatility.
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