Government strikes deal with EDF for next-generation nuclear power plant

21 Oct 13
The government has struck a deal to support the construction of a new nuclear power station at Hinkley Point in Somerset, but the terms could see energy company EDF receiving above-market payments for 35 years.

By Richard Johnstone | 21 October 2013

The government has struck a deal to support the construction of a new nuclear power station at Hinkley Point in Somerset, but the terms could see energy company EDF receiving above-market payments for 35 years.

The government has reached a deal to support the construction of a new nuclear power station at Hinkley Point in Somerset, agreeing a package that could mean power generator EDF will receive above-market payments for 35 years.

Under today’s agreement with EDF, the government has guaranteed that the French state-owned energy firm will receive £92.50 per megawatt hour of energy generated when the power plant opens in 2023.

This is almost twice the current wholesale cost of electricity, and – even if it remains above market rates­ – will be met from customer bills over 35 years. The payments will also be linked to the Consumer Price Index, but could be cut to £89.50 if EDF also builds a second plant at Sizewell in Suffolk.

The minimum payment, known as the ‘strike price’, has been designed to encourage private investment in energy projects as part of the government’s energy market reforms.

Meanwhile, two-thirds (65%) of the £16bn cost to build the new station will be covered by Treasury guarantees. The UK Guarantee scheme is intended to help nationally significant infrastructure projects access capital from the market at the lowest possible cost.

Overall, the new plant is expected to provide power for nearly 6 million homes – around 7% of the UK’s electricity demand – when running at full capacity.

It is estimated that 25,000 jobs will be created during construction, with 5,600 people employed on site at the peak. Around 900 permanent jobs will be created from the plant’s operation.

Hinkley Point C will be the first new nuclear power station to be built since Sizewell B, which started generating electricity in 1995. Its construction will begin the process of replacing the existing network of nuclear power stations, most of which are due to close in the 2020s.

Prime Minister David Cameron welcomed the deal, which was necessary to ensure the country had the energy provision for industries to grow.

He added: ‘As we compete in the tough global race, this underlines the confidence there is in Britain and makes clear that we are very much open for business.

‘This also marks the next generation of nuclear power in Britain, which has an important part to play in contributing to our future energy needs and our longer term security of supply.’

Energy Secretary Ed Davey added that the agreement represented ‘an excellent deal for Britain and British consumers’. For the first time, a nuclear power station will be built in this country without money from the taxpayer, he said.

‘This deal is competitive with other large-scale clean energy and with gas – and while consumers won’t pay anything up front, they’ll share directly in any gains made from the project coming in under budget and from refinancing or equity sales in particular circumstances.’

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