Davey hails landmark nuclear deal

Updated: 

Ed Davey

Energy Secretary Ed Davey has hailed a landmark deal to build Britain's first new nuclear plant in a generation.

The agreement with French-owned EDF Energy will see Hinkley Point C begin operating in 2023.


But ministers are likely to face criticism over the £92.50 per megawatt hour that will be paid for electricity produced at the Somerset site - around double the current market rate.

The so-called 'strike price' could fall by £3 if another mooted development at Sizewell goes ahead, allowing for efficiencies in development and testing.
The contract is due to run for 35 years, with the electric price increasing annually in line with CPI inflation. At full capacity the two reactors could provide up to 7% of the country's energy needs.

It is understood that China General Nuclear Power Group and China National Nuclear Corporation will be investing in the estimated £14 billion scheme.

One of the last stumbling blocks to a deal was removed last week when Chancellor George Osborne announced that Chinese firms would be allowed to invest in civil nuclear projects in the UK - even potentially taking a majority stake.

Mr Davey insisted he had secured "good value" following more than a year of intense negotiations. The project will cut the UK's carbon emissions by nine million tonnes a year, and create thousands of jobs.

"We think it would be good value if (the strike price) was a little higher," the Liberal Democrat Cabinet minister said.

"I was determined to get them below £90 so I could prove to everybody we had got a good deal...

"What has driven a tougher deal is the fact that I made clear we could walk away from the table. We had other nuclear options."

He added: "We have got an early start on our long-term energy needs."

Mr Davey stressed that the construction risks were being borne by the companies, and the Government would not be on the hook for any overspends.

However, if costs fell, the taxpayer would share in the savings.

There are also protections for the Government in the event that the firms are able to refinance and boost profit margins.

All decommissioning and waste management costs are also included in the deal, he said.

The initial commercial agreement is not legally binding until EU clearance has been secured for the state aid. A final contract is expected to be signed next year.

The announcement comes with energy policy high on the agenda after the Big Six power firms began unveiling hikes of more than 9% in electricity and gas prices.

Labour leader Ed Miliband has sought to gain the political initiative by pledging to freeze retail prices for 20 months if he wins the 2015 general election.

The Archbishop of Canterbury, the Most Rev Justin Welby, and Deputy Prime Minister Nick Clegg both raised concerns about the increases yesterday.

Mr Welby told the Mail on Sunday the companies had to be "conscious of their social obligations" and "behave with generosity and not merely to maximise opportunity".

Mr Clegg demanded more evidence that the hikes were needed at all.

"Clearly the companies need to justify the bill increases that they are now announcing," the Liberal Democrat leader told Sky News' Murnaghan programme.

"It cannot be right that people who are really struggling - many, many people still struggling to pay their weekly, their monthly bills, where electricity and gas bills for this winter are a looming worry - it can't be right that those bills are increased for those households in our country and yet it is all rather opaque about what drives these increases.

"Because some of the companies are not really open enough yet and transparent enough yet about their own balance sheet."

Prime Minister 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 £16 billion 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.

"This also marks the next generation of nuclear power in Britain, which has an important part to play in contributing to our future energy needs and our longer term security of supply".

EDF group chairman and chief executive Henri Proglio 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 EPR project at Hinkley Point represents a great opportunity for the French nuclear industry in a context of a renewal of competencies.

"This project will deliver a boost to the economy and create job opportunities on both sides of the Channel and will enable the United Kingdom, a country in which EDF is already the leading producer of electricity, to increase the share of carbon-free energy in its production mix."

EDF Energy chief executive officer Vincent de Rivaz said: "What we are announcing today is a good, fair and balanced deal for consumers, the UK and EDF.

"The project will kick start the UK nuclear programme and will help rebuild the nation's industrial stamina.

"The progress so far on the project reflects the great skill and determination of a world-class team which is ready to get to work and turn Hinkley Point C into a reality."

Hinkley Point C will be the first new nuclear power station to be built since Sizewell B, which started generating electricity in 1995.

The Government said building a new fleet of nuclear power stations could reduce bills by more than £75 a year in 2030.

Around 25,000 jobs are expected to be created during construction of the power plant as well as 900 permanent jobs during its 60-year operation.

Shadow energy secretary Caroline Flint claimed the deal put the Prime Minister in a "ridiculous" position.

She said: "Labour supports the development of new nuclear power stations in Britain as part of a balanced, secure and clean energy mix. We will scrutinise the details of this deal to ensure it delivers value for money for consumers.

"The potential costs of this agreement make it all the more crucial that we end the rip-offs and have an energy market that people trust. Labour will freeze energy bills through to the start of 2017 while we reset the energy market to make it more competitive, transparent and fair 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."

Unite union national officer Kevin Coyne said: "At last the Government has provided the stability and certainty the UK needs to begin to meet the huge energy challenge facing us.

"Nuclear power is a key part of a balanced, low-carbon energy policy.

"The go-ahead at Hinkley Point will deliver thousands of skilled jobs in construction, manufacturing and the operation of the power station.

"The deal will hopefully pave the way for more power stations which will in turn generate more skilled jobs."

Speaking on BBC Breakfast, Mr Davey said: "This power station won't start generating until 2023 and that is when it will start touching consumer bills - in 10 years' time.

"We have got to make these investments, though, because two-thirds, nearly two-thirds of our electricity generating capacity is going off line over the next 15 years so we have got to r eplace it, we have got to replace eight out of nine of our nuclear power stations, and almost all our coal power stations.

"If people at home want to be able to keep watching the television, be able to turn the kettle on, and benefit from electricity, we have got to make these investments. It is essential to keep the lights on and to power British business."

Which? executive director Richard Lloyd called for the deal to include a clause which would trigger a refund to consumers if it turns out that the Government has overpaid.

"Rising energy bills are one of the top concerns for cash-strapped consumers, so everyone will want to be assured that the price the Government has agreed for new nuclear power is fair," he 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.

"The National Audit Office should also be responsible for ongoing reviews so that ministers' decisions are held to account and consumers can have more confidence that their money is being spent wisely."

Politicians in Somerset said the news was a massive boost for the county's economy.

John Osman, leader of Somerset County Council, said: "This huge step forward is important for Somerset's young people.

"It's important for businesses and our local economy and it's important for our communities.

"This puts Somerset firmly in the national spotlight and it's now tremendously important we all work together to get the best benefits we can for them."

David Hall, the council's cabinet member for business, inward investment and policy, said: "This is a huge step forward on what has been a very long road towards the development of Hinkley Point C.

"Somerset is at the forefront of the UK's new generation of nuclear development and the proposed Hinkley Point C nuclear power station is an extremely important opportunity for our county.

"We are doing all we can to maximise the many opportunities that this development will bring to the area, while minimising any impacts.

"Whilst the final investment decision has yet to be announced by EDF, all the necessary stages are being addressed one by one.

"I am delighted that this latest announcement will provide a significant boost to business confidence throughout the county."

It is expected that the proposed development will see 25,000 jobs created over the construction period, which includes 5,600 construction opportunities plus thousands of supply chain jobs - worth £100 million a year to the local economy during the peak construction phase.

Also £128 million will be made available for community projects over 40 years once the plant is operational.

Mr Davey said the "expectation" was that the "vast majority" of workers employed during the plant's construction would be British.

He told the BBC Radio 4 Today programme: "We do think this is a very good deal for UK industry, not least because 57% of the value of the project is going to go UK firms, so there's going to be UK firms and UK workers getting jobs and investment as a result of the deals we have been agreeing."

Mr Davey said the Government expected to pay £89.50 per megawatt because it believes another nuclear development will go ahead.

He said: "It won't touch consumer bills, it won't touch industries' bills 'til 10 years' time. The challenge we have got as a country is we have got to replace about two-thirds of electricity generating capacity in the next 15 years."

He added: "We have got a huge gap and the question is if we just rely on gas we'll see prices going through the roof. Rising gas prices have been the cause of people's rising energy bills at the moment so I'm not prepared to gamble on future energy prices by risking it."

Greenpeace UK executive director John Sauven said: "Hinkley C fails every test - economic, consumer, and environmental. It will lock a generation of consumers into higher energy bills via a strike price that's nearly double the current price of electricity, and it will distort energy policy by displacing newer, cleaner, technologies that are dropping dramatically in price.

"With companies like Dong Energy now saying the price of offshore wind will drop so much it will be on par with nuclear by the 2020s, there is little rationale for allowing Hinkley C to proceed.

"Giving it the green light when there is no credible plan for dealing with the waste is also unacceptable. David Cameron has said himself that, until the waste issue is sorted, no new investment is possible.

"This is yet another Government U-turn which is creating uncertainty for investment in both energy efficiency and renewable energy, which, despite recent headlines, remain the best long-term solution for the consumer, energy security and tackling climate change."

© 2013 Press Association