Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Go-ahead for new power station

The government gave its final approval for the Hinkley Point C nuclear power project on 15 September, after reaching a revised agreement with the plant’s developer EDF. The contract – and therefore final confirmation that the project will be built – was signed two weeks later.

Supply security

The Hinkley Point C plant will have a capacity of 3.2GW, which would deliver around 7% of the UK’s electricity needs. The first power from the plant is expected to be generated in 2025.

Policy-makers have, over the past few years, repeatedly stressed the plant’s importance in ensuring the UK’s energy security during the low-carbon transition, an argument that has been given renewed emphasis by the recent closure of several coal-fired power plants as market conditions have become more challenging.

History of delays

The project has been in development ever since the Labour government of Tony Blair set out an ambition for a new fleet of nuclear power projects a decade ago.

Vincent de Rivaz, EDF Energy’s chief executive, said in 2007 that the company hoped to build the plant in time to provide electricity for Britons to “cook their Christmas turkeys” in 2017. However, it has since encountered a series of delays.

EDF at last announced a Final Investment Decision on the plant on 28 July this year, only for the government to confirm the same day that it would undertake a review before reaching a decision on the agreement put in place by the previous coalition government.

Media sources later suggested that the delay was driven by prime minister Theresa May’s concerns about the security implications of China’s involvement in the project. The state-owned China General Nuclear holds a 33.5% stake in Hinkley.

Government green light

The revised agreement, outlined by business and energy secretary Greg Clark in a statement to Parliament on 15 September, will put the government in a position to prevent the sale of EDF’s controlling stake in the project prior to the completion of construction. Existing legal powers allow the government to intervene in the sale of the stake once Hinkley is operational.

But no changes have been made to the contract for difference (CfD) agreed with EDF. The CfD will see the plant paid the difference between a “strike price”––a price for electricity reflecting the cost of investing in a particular low-carbon technology––and the “reference price”, which is a measure of the average market price for electricity in the GB market.

The CfD is intended to give greater certainty and stability of revenues to low-carbon generators than the previous Renewables Obligation scheme, by reducing their exposure to volatile wholesale prices.

Cost criticism

Hinkley Point will receive £92.50/MWh (in 2012 prices), over a 35-year period (though this would fall to £89.50/MWh if the Sizewell C nuclear project in Suffolk were also built).

At twice the price of wholesale power, the CfD has been subject to considerable scrutiny and debate over the past couple of years. Some analysts have suggested that it could see EDF receiving as much as £115bn in revenues over the 35-year lifetime of the contract.

But a “value for money” assessment, issued by the government on 30 September, suggested that it offered the most cost-effective approach to meeting the UK’s long-term decarbonisation objectives.
The assessment claimed that, were Hinkley to be delayed by three years and gas built in its place, the UK could save over £3bn by 2030.

However, the government said that this approach would leave the UK likely to fall short of its long-term emissions reduction targets.

But other stakeholders have continued to raise concerns about Hinkley’s costs.

The Labour Party said it was “extraordinary” that the government had not looked in detail at the subsidies that would be paid to the plant. Consumers would, it said, be “saddled” with a bill that, according to the National Audit Office, had already increased from £6bn to £30bn over the past few years.

Manufacturers’ organisation EEF similarly raised doubts about whether the project would offer value for money. It argued that future new nuclear projects would need to be delivered at a significantly lower strike price than was offered to EDF at Hinkley.

By contrast, the GMB union said that having secure low-carbon energy available for those days of the year when no renewable energy sources were available––owing to a lack of wind or sunshine––was crucial to meeting the country’s energy needs and reducing dependency on foreign imports of power.

New nuclear

EDF is aiming to generate the first electricity from Hinkley Point C in 2025. But, with the government having given its seal of approval, much of the media and political focus is now likely to pass to those other nuclear power projects in the pipeline.

The two most advanced of these projects are Wylfa and Moorside, which are being developed by Horizon and NuGen respectively.
Crucially, both developers have expressed confidence that they will be able to deliver their projects at a lower cost than Hinkley Point. This would reduce the subsidies paid by consumers and likely ease much of the controversy that has been associated with Hinkley.