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Electricity market reform 'critical' says EDF

Reform of the electricity market is "critical" for companies to build new nuclear power plants in the UK, EDF has said.

French energy giant EDF could not make the decision to build a new nuclear plant at Hinkley Point, Somerset, without long term contracts that provide a guaranteed price for electricity from low carbon sources, chief executive Vincent de Rivaz said.

He told MPs on the Energy and Climate Change select committee that EDF was on track to make a final investment decision over its plans with Centrica to build two new nuclear reactors at Hinkley Point at the end of 2012.

He added that the reforms were "critical" to making that decision.

"I think it's very clear that we will not be able to make our final investment decision as we expect to make it at the end of the year without a contract for difference and without a robust legal framework for this contract" he said.

The nuclear power plant also needs planning permission and consent for the design of the reactors, with all three elements on track for the decision to be made by the end of the year.

The government has proposed reform of the electricity market to encourage the £110 billion of investment they say is needed in energy infrastructure over the next decade.

A key plank of the reforms are the long term "contracts for difference" paying a guaranteed price for low carbon electricity, to give investors certainty and overcome the high capital cost of building nuclear power plants or offshore wind.

Critics have said the system will work for nuclear but not for other low carbon power sources such as wind, labelling the system a subsidy for nuclear - something the government has pledged not to provide.

New reactors are a key part of the Government's strategy to keep the lights on and drive down greenhouse gas emissions, but plans for a nuclear renaissance were hit when RWE npower and E.ON decided not to go ahead with developing nuclear power plants at Wylfa in North Wales and Oldbury-on-Severn, Gloucestershire.

Centrica's managing director of power generation, Sarwjit Sambhi, agreed that a final investment decision required the long term contracts, along with planning permission and approval of the reactor designs.

Ian Marchant, chief executive of another of the "Big Six" energy firms, SSE, warned that the negotiations over the price that nuclear generators will be paid in the contracts were being conducted in a "smoke-filled room".

He said there had been a lack of transparency over cost structures in the nuclear industry in the past and the UK was facing the same situation now.

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