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Hinkley Point C deal ‘risky and expensive’ says NAO

Hinkley Point C, EDF
  • Government deal ‘committed electricity consumers and taxpayers to a high cost and risky deal in a changing energy marketplace’
  • Government’s economic case was ‘marginal and subject to significant uncertainty’ in terms of value for money
  • EDF says project remains good value for consumers compared with alternative choices

The deal agreed by the government for the new £18bn nuclear power station Hinkley Point C has been branded as ‘risky and expensive’ with ‘uncertain strategic and economic benefits’ by the National Audit office.

The public spending watchdog has today published its report on the government’s case and approach to the deal to support the controversial new power station.

Despite the need for new nuclear power, the report said the Department for Business, Energy & Industrial Strategy (BEIS) had not ‘sufficiently considered the costs and risks of its deal for consumers’.

As part of this, it highlighted that the impact on bills had only been considered up to 2030, even though consumers would be locked in for long after that.

In reaching the conclusions for the deal, the report states the value-for-money tests showed the government’s economic case was ‘marginal and subject to significant uncertainty’. Using less favourable but reasonable assumptions about future fossil fuel prices would have meant the deal was not value for money in the tests.

The report went on to say the government’s case for the project had ‘weakened’ since agreeing commercial terms in 2013. Construction has since been delayed and the cost of top up payments under the contracts for difference (CfD) has increased from £6bn to £30bn. It criticised this, saying the government’s capacity to take alternative approaches had been limited after agreeing terms.

By aligning the approach to the deal with other low carbon technologies, it said the private sector would now bear the risk of construction cost overruns. By doing this, the NAO said it did not assess whether this would have resulted in better value for money for electricity consumers. The NAO said its own analysis showed alternative approaches could have reduced the total project cost.

The report did, however, say the government had negotiated a deal allowing some terms to be adjusted in consumers’ favour in future, however it said this needed to be managed to maximise Hinkley Point C’s value for consumers and taxpayers.

National Audit Office head Amyas Morse said: “The Department [BEIS] has committed electricity consumers and taxpayers to a high cost and risky deal in a changing energy marketplace. Time will tell whether the deal represents value for money, but we cannot say the Department has maximised the chances that it will be.”

A BEIS spokesperson responded: “Hinkley Point C will be the first new nuclear plant in a generation. This was an important strategic decision to ensure that nuclear is part of a diverse energy mix. Consumers won’t pay a penny until Hinkley is built; it will provide clean, reliable electricity powering 6 million homes and creating more than 26,000 jobs and apprenticeships in the process.”

An EDF spokesperson said: “Today’s report shows that Hinkley Point C remains good value for consumers compared with alternative choices. Consumers won’t pay a penny until the power station is operating and it is EDF Energy and CGN who will take the risk and responsibility of delivering it.

”The project is having a major impact on the UK’s industrial capacity, jobs and skills. Relaunching the UK nuclear new build industry at Hinkley Point C will enable costs for future projects, in particular Sizewell C, to be lower.“

Hinkley Point C

When complete, the new power station will contribute around 7% of the UKs estimated electricity requirement in the mid-2020s.

To allow new generating capacity to be commercially viable for private developers to build, one of the ways the government supports projects is through the contracts for difference scheme. This offers developers a greater certainty and stability of revenues. To do this, the government will pay the developer a ‘strike price’ for an agreed period of time. In the case of Hinkley, NNBG will get £92.50 for each MWh of electricity it sells for 35 years. Top up payments will be paid if the market price is lower - ultimately paid for by the bill payers.

When this was set in 2012, it was nearly double the price set for other low carbon projects.

BEIS estimates there will be an additional £10 to £15 increase in annual electricity bills in 2030 to pay for the plant, however if it is delayed by three years, this will go up to around £21 to £24.

Construction has already started on site, with the first concrete pour for the station’s galleries – a set of underground reinforced concrete tunnels which will eventually house pipes and cabling, connecting services like cooling water and electricity – taking place last March.

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