Government procurement of new nuclear ‘could bring £12bn in savings’

8 May 14
Public sector procurement of the Hinkley Point C nuclear power station in Somerset could save taxpayers around £12.4bn over 35 years, a report from the CentreForum think-tank has said.

By Richard Johnstone | 8 May 2014

Public sector procurement of the Hinkley Point C nuclear power station in Somerset could save taxpayers around £12.4bn over 35 years, a report from the CentreForum think-tank has said.

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.

Examining the government’s deal with energy firm EDF to build a new nuclear power plant at Hinkley Point, CentreForum said instead of negotiating over the subsidy that would be provided, ministers could have held an auction to determine the support.

A minimum payment, known as the ‘strike price’ was agreed between the government and the French state-owned firm under reforms intended to encourage private investment in energy projects. It guaranteed to pay £92.50 per megawatt hour of energy generated when the plant opens.

According to today’s UK new build nuclear power: delivering best value report, if a reverse auction was held to drive down the subsidy price, a credible public sector comparator could have cut the cost to government. This would be based on an arms-length agency either purchasing and operating the power station with the same guarantees offered to the private sector, or increasing competition to get a better deal.

Under this proposal, a government-backed entity run on a similar basis to Network Rail could also take the project through planning permission before contracting constriction.

Report author Toby Fenwick, a research associate at the think-tank, said that the deal signed with EDF was unlikely to be the most cost-effective option. Future deals should involve a public sector comparator firm to check value.

‘New nuclear is essential for low carbon energy,’ he said.

‘The question is how to provide it in the most cost effective way. Decisions taken under the last government will result in expensive electricity that will cost British consumers more than £12bn more than is necessary over the next 35 years. UK consumers deserve better value.

‘Operating as a Network Rail-style arms length organisation, a public operator is best placed to provide the competition required to get the best price for the low carbon nuclear power we need.’

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