Signing of a £18 billion contract for electricity offtake from the Hinkely Point C nuclear project is burdening rate-payers with higher costs than new gas power stations would have done, the UK government had to admit. Analysts at Barclays Bank estimated EDF will generate a 7.2% rate of return – even if the project would come in 25% over budget and was completed four years late (by 2029).
Yet, this profit margin is lower than EDF’s initially envisaged 9% rate of return on its proposed £12 billion investment, Barclay’s Stephen Hunt pointed out. The bank’s assessment had raised fresh concerns over DECC’s initial plans to guarantee the French utility a 35-years power offtake contract with subsidised prices at more than twice the current UK wholesale rate.
Under a deal, first agreed with EDF in 2013, Hinkley operators will be paid a fixed price of £92.50/MWh for the nuclear power it produces for 35 years, funded through levies on energy bills. The National Audit Office had warned this deal could cost conjure up £30 billion in subsidies that would burden end-customers.
New-built gas power for half the price of nuclear
A government assessment found that the “comparable cost” of new gas in the 2020s could be as low as £45/MWh – less than half the price of the Hinkley contract –, solar as low as £65/MWh and onshore wind as low as £49/MWh. Nonetheless the controversial nuclear power purchase agreement got signed into law.
A series of deals sealed by the Government, France’s EDF and China's state nuclear firm CGN at a ceremony in London on Thursday evening marked the final go-ahead for Britain’s first new nuclear plant in Somerset nuclear power plant and also paved the way for Chinese aspirations to build their own reactor in Essex.
CGN chairman He Yu rebuked what he called “baseless and inaccurate” criticism of Chinese involvement in UK nuclear power, suggesting the deal would now be “cementing the golden era between China and the UK.” He announced that CGN would start the safety approval process for its reactor “immediately” with the aim of completing it within five years’ time.
Delayed timeline of new nuclear
Financial close on the Hinkley Point C project has been delayed time and again, but once operational the two EPR reactors in Somerset would have an installed capacity of 3,200 MWe, enough to cover 7% of Britain’s power needs while avoiding imports of 50 TWh of natural gas.
Gas generation is now back on the cards as a quick solution to fill Britain’s looming capacity gap. By 2030, only one of the country’s nuclear power stations will still be operational, while the most polluting coal-fired power plants will be closed. Gas-fired plants last year produced about 30% of the UK’s electricity needs – yet it is poised to take over much of coal’s 30% market share, unless offshore winds proves easier to finance.
Despite help through the capacity market mechanism, investment in new-built gas capacity has been far and few between. Power producers deem the price of the second UK capacity market auction “too low to advance investment in new, large-scale gas power plant projects.” The latest auction, held by National Grid in December, secured 46.345 GW at a clearing price of £18/kW – over £1 cheaper than last year. Yet, investors deem £35/kW to for new-builds.
