A report by the UK House of Commons public accounts committee published on 22 November said the UK government should rethink the economic case for new nuclear power stations after making “grave strategic errors” in the Hinkley Point C project.
The committee stated consumers had been “dealt a bad hand” by the government’s agreement to lock UK households into buying overpriced electricity from Hinkley for 35 years. It said the government had neglected consumer interests and failing to push for a better deal with the French and Chinese investors that are building the £20bn plant at Hinkley Point in Somerset.
The committee scrutinised the terms of the contract-for-difference (CfD) agreed between the government and the planned plant's operator, Electricite de France (EDF). It said the strike price of £92.50 ($123.12) per megawatt hour, agreed in 2013 and confirmed last year, would cost consumers £30bn over the length of the 35-year contract, representing an increase of £10-15 to the average household energy bill. That is five times more than the £6bn estimated in 2013.
Committee chair Meg Hillier commented: “Its blinkered determination to agree the Hinkley deal, regardless of changing circumstances, means that for years to come energy consumers will face costs running to many times the original estimate.”
The committee urged the government to “re-evaluate and publish its strategic case for supporting nuclear power before agreeing on any further deals”.
Members of Parliament said the government should have sought to renegotiate terms with EDF and China General Nuclear Power Group (CGN), the Chinese state-owned company contributing a third of the finance. The government had argued this would have put the deal at risk, undermining energy security and damaging investor confidence in the UK.
The committee also criticised the government for failing to consider contributing public funds to Hinkley, which could have reduced financing costs.
The report urged for more be done to ensure that strategic benefits from the Hinkley project, such as jobs and investment, benefit the UK economy. It also said that a 'plan B' should also be put in place to prevent potential delays to the Hinkley project resulting in electricity shortages in the late-2020s, when the plant is due to come online.
EDF, for its part, said construction of Hinkley Point remains on track. It insists that the cost of electricity from the plant would be lower than 80% of other low-carbon energy sources, such as wind and solar, contracted by the UK government so far. EDF also said future nuclear reactors would be cheaper than Hinkley as the UK nuclear supply chain would be reactivated.
The UK Department for Business, Energy and Industrial Strategy (BEIS) said the government had negotiated “a competitive deal” with EDF, which “ensures consumers won’t pay a penny for any construction overruns and until the station generates electricity in 2025”.
Hinkley Point C will be the first nuclear plant to be built in the UK since 1995 and will cover 7% of electricity needs from the mid-2020s. The government sees Hinkley Point C and other planned reactors as key to its strategic aim of managing the energy trilemma of cost certainty, security of supply, and decarbonisation.
The committee’s recommendations include:
- BEIS needs to draw up a plan for realising the broader strategic and economic benefits of Hinkley Point C, as part of its development of the industrial strategy. The plan should explain how it will prove those benefits have been achieved.
- By March 2018, BEIS should tell the committee how it will ensure there is an independent and transparent assessment of the impacts on consumers, including the poorest households, when agreeing to future energy infrastructure deals that are paid for through consumers' bills.
- BEIS should re-evaluate and publish its strategic case for supporting nuclear power before agreeing on any further deals for nuclear plants.
- BEIS and the Treasury should show decision makers the cost and risk implications of different possible financing structures when appraising large infrastructure projects, including any further nuclear deals, even if they are outside the prevailing policy.
- BEIS should ensure it publishes its 'plan B' for achieving energy security, while at the same time delivering on its decarbonisation and affordability ambitions, before the end of this year and should review and revise it every year in light of the latest progress at Hinkley Point C.
- BEIS must ensure on an ongoing basis that the Low Carbon Contracts Company has the skills, capacity and access rights that enable it to effectively monitor delivery on the Hinkley Point C project.
Photo: View of the concrete batching plant at Hinkley Point C (Credit: EDF Energy)