Hinkley Point C nuclear plant: a good deal for the UK?

5 January 2014 (Last Updated July 15th, 2020 21:32)

Last year, the UK Government struck up an unprecedented deal with EDF Energy to build two new nuclear reactors at Hinkley Point C. Its 35-year price guarantee has attracted controversy. We ask if nuclear power and the Hinkley deal are the best move for the UK's future energy strategy.

Hinkley Point C nuclear plant: a good deal for the UK?

Hinkley Point, Somerset

After nearly a decade in the making, the UK announced last year that it will build its first nuclear power plant in the country for 20 years, and the first built in Europe since the 2011 Fukushima disaster in Japan.

In October 2013, UK Energy Secretary Ed Davey said that the government had given the go-ahead for a consortium of France's state-owned EDF Energy and Chinese investors, China National Nuclear Corporation and China General Nuclear Power Corporation, to build the Hinkley Point C plant in rural Somerset.

The two reactors are not expected to be on-stream for another decade. They will each cost £8bn to build and provide power to around six million British homes (7%) for 60 years.

While the government's long-awaited decision to build initially received a positive reaction, further details of the Hinkley deal have been subject to intense scrutiny and criticism.

The most questioned point is the decision to agree a minimum price of £92.50 for every megawatt hour (MWh) that Hinkley Point generates, which would be linked to the Consumer Price Index of energy. The figure is almost double the current wholesale cost of electricity in the UK and would make it the first European country to offer a set price over 35 years for a new nuclear project, prompting some experts to brand the move 'economic madness'.

Despite this, the government has remained resolute, stating that the deal is 'competitive with other large-scale, clean energy and with gas' and 'brilliant news for the south-west and for the country as a whole'.

Is Hinkley a good deal for future energy prices?

In 2013, the price of UK energy became a burning political issue as the Big Six energy companies, British Gas, EDF Energy, E.ON UK, npower, Scottish Power and SSE, significantly increased their prices, prompting widespread calls for the government to intervene over the cost of UK energy.

Amid this pressure, the government announced the Hinkley deal. It proved to be something of a gamble due to it being unknown what the average price of wholesale energy will be a decade from now.

The government assured consumers that they will only pay for Hinkley from 2023 when electricity is being generated. Ministers added that building a new fleet of nuclear power stations could reduce bills by more than £75 a year by 2030, compared with having no nuclear energy option.

"In another 40 years, the price is likely to be horribly expensive. It might not seem such a rip-off in hindsight."

In an emailed statement, EDF said that if wholesale prices rise above the 'strike price', customers will not pay more.

Despite these assurances some say it is simply a bad deal.

Jim Ratcliffe, whose company Ineos owns the Grangemouth nuclear power plant in Scotland, stated in a BBC interview in December that the UK has the most expensive energy in the world.

"Nobody in manufacturing is going to go near [that price agreed for Hinkley]," Ratcliffe said.

Last year, Ineos struck up its own deal for nuclear power in France at €45 (£37.94) per MWh.

The House of Commons' environmental audit committee criticised the government for refusing to admit that the deal effectively subsidised EDF and its partners.

The committee said in a report: "The government cannot escape that clear fact by talking about 'support mechanisms' and 'insurance policies' instead of 'subsidies'."

David Thomas from the website TheEcoExperts.co.uk said the government's arrangement with EDF was 'bizarre'.

"The only defence would be the incredibly steep rise of UK energy costs," Thomas said. "In another 40 years, the price is likely to be horribly expensive. I suppose, comparatively, it might not seem such a rip-off in hindsight. But at twice the current market rate, it's a rip-off now."

One major issue that has arisen since the Hinkley deal was announced is the fact that the guaranteed £92.50 per MWh price is indexed linked.

Colin Calder, an independent advisor to the Department of Energy and Climate Change and founder of green technology company, PassivSystems, said that by doing this the government is breaking into the future cost of energy.

"I think the index linking will absolutely push those prices to a level beyond what other forms of energy at that time will be able to offer the UK economy," he added.

Index linking the guaranteed price has also prompted the European Commission to look more closely at the Hinkley deal. The EU competition commissioner said in December it is likely to launch an enquiry into the deal.

However, UK Energy minister Michael Fallon confidently told the Guardian: "I have no reason to believe the commission will block it."

What affect will Hinkley have on the greater UK economy?

Colin Calder said the development would be a boost for the UK.

"For sure, building the facility is going to create jobs and it will be a boost for the economy," Calder said. "So short-term over the five-ten years, yes, it will have a positive impact."

According to the government, building the two reactors at Hinkley Point C is costing EDF Group and its fellow investors around £16bn, with UK companies potentially benefitting by getting up to 57% of the work contracts. They said it could also mean the creation of 25,000 jobs during the construction, with 5,600 people employed onsite at its peak period and 900 permanent jobs over its 60 years of expected operation.

Humphrey Cadoux Hudson, EDF Energy's managing director for build was quoted in the Bristol Evening Post as saying: "There are many UK companies already winning high-value global nuclear contracts. Our aim is to help many more British businesses benefit from this huge opportunity."

"Building the facility is going to create jobs and it will be a boost for the economy."

Although Hinkley is expected to boost the UK economy, Calder points out that the benefits and cost have to be balanced.

"I think the UK needs to transition from using fossil fuels to having clean energy sources, but at what price?" Calder said.

"I think the deal is far to weighted towards the interests of the investors against the interests of the consumers of that energy."

This is something that David Thomas agrees with. "If you're a huge energy company and you're trying to win a governmental contract to sell energy to people for a profit, your aims are less aligned with the individual citizen; especially when they have limited alternatives," he said.

Although consumers will not pay anything until 2023 when the power plant is expected to be online, Caroline Lucas, the Green Party MP for Brighton Pavilion, pointed out that there are other costs to be shouldered by the taxpayer or consumer.

"They [EDF and investors] are only expected to meet a 'share' of the costs of dealing with the toxic waste created by their generators, with the public facing another bill for clean-up costs in future," Lucas said

Other potentially costly 'guarantees' the government has agreed to include protection for any increases in nuclear insurance costs as a result of withdrawal of government cover, and compensation to the Hinkley Point C investors for their equity return in the event of a government-directed shut down of Hinkley Point C for reasons other than health, safety, security, environmental, transport or safeguards concerns.

Is the future nuclear?

"Nuclear is only part of the solution," said David Thomas. "We don't yet have the renewable energy infrastructure to power the whole country, so we must look at the other low-carbon energy contender, which is nuclear."

"The long-term answer is renewables, but we need investment."

However, he adds that some would say the plans for Hinkley are already outdated and a more appropriate model of nuclear power plant could be built.

"GE Hitachi wants to build something called an integral fast reactor, which consumes nuclear waste," Thomas added.

"As I understand it, the UK already has enough nuclear waste to power itself for 500 years with fast reactors. The nuclear plant EDF wants to build at Hinckley is third-generation and cannot run on nuclear waste."

Nuclear is clean energy that will help the UK meet its carbon reduction emission targets in the future, therefore most experts agree that, even if they disapprove of the deal struck for Hinkley, putting nuclear at the heart of the UK's energy strategy is a positive move. Whether the deal will pay-off economically in the long-run will only be evident in decades to come when Hinkley is built, hopefully on time, and feeding the grid.

Although nuclear is the UK's foreseeable energy future solution, many believe it is important to consider investment in even cleaner energy, such as renewables, for the non-foreseeable future.

Thomas said: "The long-term answer is renewables, but we need investment. In another 15 years [we could see] 40% of our national power demand supplied by renewable energy. In another thirty, who knows?"

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