Oral statement to Parliament
Agreement reached on new nuclear power station at Hinkley
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Edward Davey gives a statement on the initial agreement reached on a new nuclear power station at Hinkley.
Mr Speaker, I would like to make a statement on the UK’s nuclear energy programme.
I am pleased to inform the House that the Government and EDF have reached broad commercial agreement on the key terms of a proposed investment contract for a new nuclear power station at Hinkley Point in Somerset.
This paves the way for the construction of Hinkley Point C - the first nuclear power station in the UK for a generation
Nuclear power has been part of Britain’s energy mix since the 1950s, responsible at points for as much as a quarter of our electricity.
But since Sizewell B connected to the grid in 1995, no new nuclear power stations have been commissioned.
Eight of the nine operational nuclear power stations in the UK will reach the end of their planned life in the next decade.
So the agreement today is a demonstration of the Government’s commitment to a new fleet of nuclear power stations to replace those due to close and to protect Britain’s future energy security.
A contract for Hinkley Point C under the key terms set out today would provide significant benefits for the UK:
Up to 25,000 jobs for skilled workers with over the course of construction and 900 long-term jobs during the 60 year life-span of the plant;
A £16bn injection into the economy, with the potential for British firms getting the majority of the work and over £4.5bn paid in corporation tax.
EDF estimate that £100m will go into the local economy every year during peak construction.
Hinkley Point C would supply a stable source of low-carbon, climate friendly power for nearly six million homes (nearly twice the number of homes in London) supplying 7% of the UK’s electricity by 2025.
It would reduce emissions by the equivalent of around 5% of the UK’s annual CO2 emissions from energy supply compared to unabated gas-fired generation.
It would increase energy security and resilience from a safe, reliable, home-grown source of electricity, reducing electricity bills by around 10% compared to a non-nuclear future.
And with clean-up costs included from the outset, we would be avoiding the mistakes of the past.
So this is good news for jobs, good news for the economy, good news for bill-payers, good news for energy security and good news for the environment.
This announcement also represents a significant vote of confidence in Government’s reforms to the electricity market.
We are creating one of the most attractive electricity investment markets in the world, driving an increase in low-carbon technology, and delivering the modernised infrastructure that will provide energy security and cut emissions in the years to come.
Mr Speaker, before I go into detail on the terms of the agreement announced today, I would like to put on record my gratitude to all those who have worked hard to bring us to this point, in EDF and in Government, including those my Department, Energy and Climate Change.
I would specifically like to thank Lord Deighton and his team for the strong contribution they have made supporting the DECC negotiating team.
Working together, I believe we have agreed the basis of a deal that would provide a good deal for UK consumers - meeting the requirement for value for money; and provide an attractive proposition for EDF and its investors - offering a reasonable rate of return for the risks they are taking.
Strike price/contract length
So let me set out for the House, the key terms on which broad commercial agreement has been reached.
Hinkley Point C would be the first nuclear power station to be built under the new system of ‘Contracts for Difference’ (CfD) being put in place by the Energy Bill.
CfDs provide low carbon energy suppliers with predictable future revenues, making it easier and cheaper to secure development investment and finance, but protect consumers should prices rise.
The duration of the payments under the Contract for Difference for Hinkley Point C would be for 35 years which is around 60% of the 60 year operating life of the plant, proportionally similar to the length of CfDs being offered to most renewables technologies.
Under CfDs low carbon generators receive a stable price for the electricity they sell – known as the ‘strike price’.
We have agreed a ‘strike price’ of £89.50 per megawatt hour, fully indexed to CPI.
Hinkley Point C will be the first of the new European Pressurised Reactor (EPR) in the UK.
So this strike price benefits from an upfront reduction of £3 per megawatt hour on the basis that EDF’s subsidiary NNB Generation Company Limited (NNBG) would share ‘first of kind’ costs of the EPR reactors across the Hinkley Point C and Sizewell C sites.
If a final investment decision on Sizewell C is not taken, the Strike Price for Hinkley would be £92.50.
An agreement on these terms meets the Government’s value for money requirement.
Hinkley Point C would be competitive with other low-carbon technologies, including onshore wind, the cheapest large scale renewable, and with new unabated gas plant commissioning in the same timeframe.
Other terms on which broad commercial agreement has been reached provide a series of protections for both sides that together represents an appropriate allocation of risk including:
Gain share arrangements where, if the developer achieves savings during construction or through refinancing or equity sales, the benefit will be shared
Operational cost review arrangements, including at 15 and 25 years to reassess operating costs and adjust the strike price if necessary.
Change in Law arrangements where the strike price would be adjusted, to reflect cost changes arising from certain changes in law.
Compensation arrangements in the event that Hinkley Point C were to be shut down as a result of a political decision, rather than one – for instance – on safety grounds.
Separately, and for the first time ever, to deal with clean-up costs of new nuclear, developers will be required to put money aside in a protected clean-up fund to pay for eventual decommissioning and share the waste management costs.
This is anticipated to account for around £2 of the strike price.
The Funded Decommissioning Programme would need to be approved by the Secretary of State before construction starts.
Mr Speaker, all the terms are subject to contract and form the basis for further negotiation.
EDF and HM Treasury will continue discussion regarding the terms of a potential UK Guarantee.
Ultimately, an investment contract would only be offered to NNBG if we consider the contract to be value for money and in line with our no public subsidy policy.
Any investment contract would also be conditional on any required State Aid clearance being obtained, and on Royal Assent of the Energy Bill.
If agreed, the contract would be laid before Parliament in accordance with the Bill.
EDF has announced today the intent of two Chinese companies, CGN and CNNC, to invest in Hinkley Point C as minority shareholders.
This follows the signing last week a Memorandum of Understanding on civil nuclear cooperation between the UK and Chinese Governments.
UK and China have a long-standing bilateral agreement to cooperate on the peaceful uses of nuclear power.
Chinese companies have an established track record in delivering safe nuclear power over the past thirty years.
Any company involved in the UK’s nuclear power industry does so in accordance with the most stringent regulations in the world and, on this basis, we welcome companies which can demonstrate the capability to contribute to safe nuclear power generation in the UK.
In conclusion, Mr Speaker, I respect those who have long been opposed to nuclear technology on principle.
As the record shows, I have had my concerns in the past, as has my Party.
But I am satisfied that the safety and legacy issues relating to the new nuclear power programme are manageable – particularly with the protected clean-up fund.
With regards to the issue of cost, I am clear, this is not a deal at any price.
This is a deal at the right price.
Consumers will not have to pay over the odds for new nuclear.
The price agreed for the electricity is competitive with the projected costs for other plants commissioning in the 2020s - not just with other low carbon alternatives but also with unabated gas.
As set out to Parliament in October 2010, and again in February this year, new nuclear will receive no support, unless similar support is also made available more widely to other technologies.
Mr Speaker, we have a huge challenge ahead of us.
With many old and dirty power stations closing down over the next decade, the capital investment required to replace that electricity generating capacity is around £110bn between now and 2020 - the largest infrastructure programme in Government.
This agreement is a vote of confidence in the measures this Government is putting in place to attract investment into the system, to make the market work, and to ensure we keep the lights on.
We need to decarbonise our electricity sector to meet our emissions targets and our responsibilities to the next generation.
And we need a revolution in home-grown energy generation to protect bill-payers from price rises caused by volatile world gas markets.
Nuclear power is a key part of the Government’s energy security strategy.
This announcement is another step on the path to realising a safe and dependable source of clean power for millions of homes, jobs for thousands of skilled workers, a boost to the economy and reductions in electricity bills over the long-term.
I commend this statement to the House.