France's EDF Energy is warning that a generation deficit of between 15 GW
and 33 GW will arise by 2015 because of the closure of nuclear, oil and coal
plants in the UK.
In its submission to the government nuclear consultation, published
Monday, EDF says the reason for the wide range is that the level of demand
growth is uncertain. It is also uncertain whether coal plant will close in
2015 or later. After 2015 there will be further nuclear closures, coal
closures and, possibly, closure of some of the earlier combined-cycle gas
turbines. This will all lead to a requirement for a further 15 GW and 20 GW of
new capacity by 2025.
EDF says: "While nuclear is unlikely to be able to contribute to the
initial energy gap in 2016, there will be a requirement for large volumes of
new capacity from 2017 onwards."
Last week EDF Energy boss Vincent de Rivaz said that his company could
get a new nuclear plant up and running by 2017. New nuclear will reduce the
UK's dependence on imported gas, says EDF in the document.
"This has the effect of reducing the potential impact arising from any
gas supply interruptions and gas price volatility," it notes.

EDF PROPOSES CARBON HEDGE FOR NUCLEAR
In its submission, EDF Energy also proposes a new financial instrument to
lay off the political risks associated with the price of carbon, something
that will affect the investment decisions for all low-carbon generation such
as new nuclear plant.
The so-called Carbon Hedge can hedge the carbon price risk for low-carbon
investments and can be designed to be consistent with existing market and
policy mechanisms, says EDF.
At the moment, financing new plant on the back of the EU Emissions
Trading Scheme is seen to entail too much political risk because politicians
influence the carbon price in a number of ways. They can set the length of the
ETS phases, rule how allowances are allocated and also set the scope of
national targets.
One way to mitigate these risks, says EDF Energy, is to introduce a hedge
mechanism for the carbon price. Under the scheme electricity companies would
bid in to supply a fixed volume of low-carbon electricity from a certain date
in the future for a number of years based on an assumption that each unit of
low-carbon electricity would displace the need for a unit of electricity from
other forms of generation.
The bid price submitted to secure the hedge would determine a guaranteed
floor price for CO2 for the investor.
If the market price for CO2 fell below the agreed floor price during the
term of the hedge then the investor would be compensated for the difference
between the floor price in the hedge and the actual market price of CO2.
The investor would not receive any payment if the market price remained
above the floor price agreed in the hedge.
Any carbon hedge offered would be competitive and this approach is
technology-neutral, says EDF Energy. "The government is simply reducing the
political risk faced by investors."