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Britain to build first nuclear power station for 20 years in EDF deal
David Cameron hails nuclear power plant deal as very big day for country
(35 minutes later)
Britain is to embark on building its first nuclear power station for two decades as the coalition hands a multibillion pound subsidy to France's EDF with help from a state-owned Chinese firm.
David Cameron has hailed the UK government agreement with French-owned EDF to build the first new British nuclear power station in 20 years, saying it was a very big day for Britain and would kickstart a new generation of nuclear power in the UK.
The two planned pressurised water reactors at Hinkley Point C, Somerset, are the first to start construction in Europe since Japan's Fukushima disaster and the first in the UK since the Sizewell B power station came online in 1995.
The energy secretary, Ed Davey, claimed it was a great deal for consumers and would result in energy bills falling by more than £75 by 2030.
He added: "If we don't make these essential investments … we're going to see the lights going out."
The 35-year deal, struck at £92.50 per megawatt hour, is twice the current wholesale market rate for electricity, and will be attacked by some as a massive subsidy to help another non-carbon fuel, with the funds going to the French taxpayer and the Chinese government, that has a minority stake to build the new plant at Hinkley C in Somerset.
With the deal between UK government and EDF announced on Monday morning, Cameron said: "This is a very big day for our country: the first time we've built a new nuclear power station for a very long time."
He said the deal would be the first of many "kick-starting again this industry, providing thousands of jobs and providing long-term, safe and secure supplies of electricity far into the future".
The subsidy inherent in the strike price reflects the risk in constructing the plant, uncertainty over the future market and the need to reduce UK's dependence on carbon fuels, such as coal and gas.
But the deal comes at a politically sensitive time as the government fends off criticism that government imposed green subsidies are pushing up the price of electricity.
Cameron has rejected a Labour proposal for a 20-month government-imposed freeze on energy prices.
The shadow energy secretary, Caroline Flint, said Labour supports nuclear power, but claimed: "David Cameron is now in the ridiculous position of saying that they can set prices 35 years ahead for the companies producing nuclear power, while insisting they can't freeze prices for 20 months for consumers while much-needed reforms are put in place."
Davey said 57% of the jobs and contracts would go UK contractors, a way of rebuilding country's decayed nuclear skills.
The two planned pressurised water reactors at Hinkley Point C will be the first to start construction in Europe since Japan's Fukushima disaster and the first in the UK since the Sizewell B power station came online in 1995.
The new reactors, which will cost £14bn, are due to start operating in 2023 if built on time and will run for 35 years. They will be capable of producing 7% of the UK's electricity – equivalent to the amount used by 7m homes.
The new reactors, which will cost £14bn, are due to start operating in 2023 if built on time and will run for 35 years. They will be capable of producing 7% of the UK's electricity – equivalent to the amount used by 7m homes.
In details released on Monday morning, the strike price – the fixed price at which output will be sold – has been set at £89.50 per megawatt hour for electricity produced at the new power station. That price will be fully indexed to consumer price inflation. But the price, at 2012 prices, is dependent on EDF moving ahead with a second plant, Sizewell C, in Suffolk. If it decides not to proceed, another £3 per MWh will be added to the strike price for Hinkley, bringing it up to £92.50 per MWh.
In details released on Monday morning, the strike price – the fixed price at which output will be sold – has been set at £89.50 per megawatt hour for electricity produced at the new power station. That price will be fully indexed to consumer price inflation. But the price, at 2012 prices, is dependent on EDF moving ahead with a second plant, Sizewell C, in Suffolk. If it decides not to proceed, another £3/MWh will be added to the strike price for Hinkley, bringing it up to £92.50/MWh.
The reduction reflects the fact that advanced costs for a "first of a kind" nuclear power station are high, but reduce with each successive new plant as economies of scale kick in, the official said. The strike price covers not only the costs of building Hinkley Point C, but all decommissioning and nuclear waste management costs.
The reduction reflects the fact that advanced costs for a "first of a kind" nuclear power station are high, but reduce with each successive new plant as economies of scale kick in, the official said. The strike price covers not only the costs of building Hinkley Point C, but all decommissioning and nuclear waste management costs.
EDF was thought to have started negotiations demanding a figure of £100, with the Treasury's gambit being £80.
EDF was thought to have started negotiations demanding a figure of £100, with the Treasury's gambit being £80.
EDF, which is majority owned by the French taxpayer and whose investment is likely to be guaranteed by the UK Treasury, will have to start depositing money into a special fund for such liabilities from the start of the project. The government has still not yet completed the process of agreeing a system of storing the waste.
EDF, which is majority owned by the French taxpayer and whose investment is likely to be guaranteed by the UK Treasury, will have to start depositing money into a special fund for such liabilities from the start of the project. The government has still not yet completed the process of agreeing a system of storing the waste.
The agreed strike price should allow EDF to make a 10% rate of return on the project. Costs would fall for taxpayers if EDF managed to refinance its package in the future, so sharing the gain.
The agreed strike price should allow EDF to make a 10% rate of return on the project. Costs would fall for taxpayer if EDF managed to refinance its package in the future, so sharing the gain.
The strike price is expected to be reviewed 7.5 years, 15 years and 25 years after the commercial operations date of the first reactor as well at the end of the contract term. Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG cover.
The strike price is expected to be reviewed 7.5 years, 15 years and 25 years after the commercial operations date of the first reactor as well at the end of the contract term. Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG cover.
Making no reference to the deal that has been struck with the French and Chinese, David Cameron said: "As part of our plan to help Britain succeed, after months of negotiation, today we have a deal for the first nuclear power station in a generation to be built in Britain.
"This deal means £16bn of investment coming into the country and the creation of 25,000 jobs, which is brilliant news for the south-west and for the country as a whole. As we compete in the tough global race, this underlines the confidence there is in Britain and makes clear that we are very much open for business."
The energy secretary, Ed Davey, said: "This is an excellent deal for Britain and British consumers. For the first time, a nuclear power station in this country will be built without money from the British taxpayer. It will increase energy security and resilience from a safe, reliable, home-grown source of electricity."
He said despite guaranteed price for 35 years being double the current wholesale price, the deal was "competitive with other large-scale clean energy and with gas – and while consumers won't pay anything up front, they'll share directly in any gains made from the project coming in under budget and from refinancing or equity sales in particular circumstances".
The government claims consumer bills will be £77 lower when the full nuclear programme is completed by 2030 and said the value for money had to take into account the likelihood of how much gas prices will rise in the future.
The shadow energy secretary, Caroline Flint, said she supported nuclear power, and would scrutinise the deal to see if it was a good deal for consumers.
"This agreement shows that long-term certainty is what really matters to unlock the investment we need to keep the lights on, not allowing overcharging to continue now. David Cameron is now in the ridiculous position of saying that they can set prices 35 years ahead for the companies producing nuclear power, while insisting they can't freeze prices for 20 months for consumers while much-needed reforms are put in place."
Henri Proglio, the chairman and CEO of EDF Group, said: "The agreement in principle reached today with the British government significantly strengthens the industrial and energy co-operation between France and the United Kingdom"
The deal is not legally binding, and is dependent on a positive decision from the European commission in relation to state aid.
Richard Lloyd, the executive director of Which?, said: "The Hinkley deal commits billions of pounds of bill-payers' money but it has been done without transparent, independent scrutiny. If it emerges that the government has overpaid, we believe there should be a mechanism to refund consumers instead of a windfall to the suppliers.
"We can't afford to continue with a situation where suppliers and ministers blame each other for energy price rises. We now need an independent expert review, that reports to parliament, of all energy policy costs, with an assessment of whether consumers are getting value for money and where savings can be made."
After months of delay, the news came as the coalition has come under intense pressure over rising electricity bills. British Gas and SSE have both announced price rises for customers of close to 10% and Ed Miliband's promise to freeze energy bills has struck a chord with voters. There are expected to be further rises announced by the big six energy companies this week.
Over the weekend, the archbishop of Canterbury, Justin Welby, waded into the row over energy prices, warning that the latest wave of increases looks inexplicable. Welby, a former oil executive, insisted the big six energy companies had an obligation to behave morally rather than just maximising profit.
"They have control because they sell something everyone has to buy. We have no choice about buying it," he told the Mail on Sunday. "With that amount of power comes huge responsibility to serve society."
The guaranteed subsidies promised by the government for Hinkley Point C will lead to accusations that ministers are loading a further cost on spiralling energy prices by again requiring British taxpayers to subsidise nuclear power. The coalition counters that similar subsidies are going to other carbon-free industries such as renewables and that the country needs the energy security and steady base load that nuclear provides. Gas prices, although relatively low, are predicted to rise.
Britain is taking a sharply different route to Germany, which has decided to phase out nuclear power, and Italy, which has scrapped a planned nuclear programme. France, traditionally the nuclear enthusiast, has pledged to cut atomic power to 50% of its electricity mix from 75% today.
Ministers will come under twin attack from green groups, both for endangering safety and for providing the subsidy, as well as from enthusiasts for shale gas for failing to put their faith in cheap gas, currently nearly half the cost of nuclear.
The energy secretary is preparing to counter green groups by arguing that onshore or offshore wind could not fill the energy gap created by the decommissioning of the first wave of power stations. By some estimates, Hinkley Point C will generate the equivalent output of 6,000 onshore wind turbines.
EDF's longtime partner, China General Nuclear Power Group, possibly in combination with China National Nuclear Corporation, is expected to have a 30% to 40% stake in the consortium, with Areva taking another 10%, according to French weekend newspaper reports. The deal is thought to provide a 10% return on EDF's investment.
The coalition policy is being led by the Liberal Democrats – the party that had, in principle, opposed nuclear power right up until its party conference in September. The deal is a huge gamble for both the government and EDF, since projecting the state of the electricity market and wholesale prices 35 years ahead is fraught with risk.
Michael Fallon, the Conservative energy minister, signalled another review of the green subsidies imposed on energy firms, but Davey said: "It only takes a GCSE in maths to recognise that green subsidies are not pushing up prices. It is a fact that 47% of energy prices come from wholesale prices and they have risen 50% in five years."
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