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nuclear

Across the world each country has its own policy and ideologies towards nuclear energy. Within the UK we currently have 16 reactors that are generating 18% of the electricity demand, however, all but one reactor will be closed by 2023. On 21st October 2013 the UK government reached a deal with EDF (a French generating company) to build a new reactor, known as Hinkley Point C. Although the investment is still not finalised because EDF will make their final decision in 2014 it does provide hope that the supply of electricity is moving in the right direction (this blog does not intend to enter the debate on whether nuclear is a suitable source of electricity). If EDF choose to go ahead the UK government have agreed a strike price of £92.50 per megawatt hour of energy for the next 35 years (there are some variations to the deal if EDF choose to build a second reactor).

 

We have on several occasions, in this blog, discussed the impending electricity supply crises within the UK and the claim that there could be possible blackouts by 2015/16 if the required investment does not go ahead. A strike price, as agreed with EDF, is one example of an intervention to stabilise the UK energy sector. A strike price is a set price that the government agrees to pay so this reduces the uncertainty of the investment – thus, providing a solid investment appraisal to determine whether this is a good investment for shareholders or not. In chapter 15 within our text book we discussed that in practice the use of investment appraisal was much more difficult that it appears in the text books because uncertainty often created models that are unreliable, this is one example of government intervention that has reduced the risks of predicting future cash-flows.

 

Sources:

World Nuclear (2013) Nuclear Power in the United Kingdom. http://www.world-nuclear.org/info/Country-Profiles/Countries-T-Z/United-Kingdom/#.UmVbOtBwYy8 accessed 21st October 2013

 

BBC (2013) Nuclear deal ‘historic day’ for UK. www.bbc.com/news accessed 21st October 2013

 

 

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