UK nuclear power enters new age with Hinkley deal - with householders footing the bill

Government to defend agreement to pay investors double the market price of electricity

Economics Editor

The French and Chinese investors in Britain’s first new nuclear power station in two decades will receive a guaranteed price of £90-£95 per megawatt hour of energy produced, the Department of Energy is expected to announce today.

The agreed “strike price”,  which will ultimately be footed by households, promises to be controversial because it is double the current market price for electricity and it comes as energy suppliers are imposing inflation-busting hikes in domestic bills.

The guaranteed price could also rise if the consortium does not take up the option of building another nuclear power station in the UK.

But Government sources insisted last night that the agreed price represents good value for households and that the construction of a new generation of nuclear power stations will,  ultimately, result in lower domestic energy bills.

The commercial agreement due to be signed today will see the French energy multinational EDF Energy and two Chinese firms – China National Nuclear Corporation and China General Nuclear Power Corporation –invest £16bn over the next decade to fund the construction of a new generation reactor at Hinkley Point in Somerset.

Government sources were keen to stress last night that the agreement will have no impact on domestic bills until the new plant comes on-stream in the early 2020s. And the Department of Energy estimates bills will be £77 a year lower in the 2030s than in the absence of any new nuclear power stations.

Today’s agreement will not be legally binding because the terms of the deal, which involves state aid, still have to be approved by the European Commission. A final investment contract is expected to be signed in the summer of 2014. The deal represents the culmination of two years of intense negotiations between the Government and private energy companies over nuclear investment. UK-listed energy firms, including British Gas-owner Centrica, have refused to invest in British nuclear power stations because they wanted a higher guaranteed price from the state.

“They demanded higher returns [than the Chinese and the French]” said a Government source last night. “[But] it’s a fair return and a lot of people in the City will be looking at this again and thinking ‘maybe we should have invested here’.” The Government hopes today’s nuclear deal will result in a “nuclear renaissance” in Britain.

Government sources said today’s agreement would ensure the guaranteed price came down if construction costs were lower than estimated and would not rise if they were higher. “We’ve gone through this with a fine toothcomb, learning from all the  mistakes of the past” said a source. However The Independent understands that unless EDF goes ahead with its plans to build another separate new  nuclear reactor in Sizewell in Suffolk, its guaranteed price for Hinkley  power will rise.

Last week British Gas raised its prices by 9.2 per cent, following SSE’s 8.2 per cent hike. Npower is expected to unveil its own increase this week. The big six energy companies say they are responding to increases in the wholesale price of energy and state-mandated environmental policies, but campaigners accuse the sector of profiteering.

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