The programme to build a new fleet of nuclear power stations in Britain has taken a significant step forward today. Now agreement has been reached with EDF on the key commercial terms of an investment contract, we can look forward confidently to the first new nuclear power station in a generation being built at Hinkley Point.
This is a very good deal for Britain – for the economy and for jobs, for energy security and for the environment and, crucially, for bill-payers. It is a clear sign of confidence in the energy market reforms the government is introducing. They are unlocking investment even before they become law.
Britain needs to have one of the most attractive investment markets for electricity in the world. Why? Because to replace the old and dirty power stations closing down over the next decade, we need £110bn of investment in networks and new electricity generating capacity. And a great deal of this needs to be low-carbon power if we are to keep climate change to the manageable levels the world’s scientific community have agreed. This is the government’s biggest infrastructure challenge.
Since 2010, we have seen £35 billion invested in new electricity infrastructure. But most of this has been in renewables and hardly any of this has been in nuclear power. Vital though renewables are, alone they cannot fill our future electricity gap. Given it is such a low carbon source of electricity that’s where nuclear comes in.
Nuclear power has been an ever present staple of Britain’s energy mix since the 1950s. At points in our history nuclear power has been responsible for as much as a quarter of our electricity. But since Sizewell B connected to the grid in 1995, no new power stations have been commissioned. And nuclear’s place in the electricity mix has been steadily falling.
Eight of the nine operational nuclear power stations in the UK will reach the end of their planned life in the next decade. We have known for years that this was coming, but no one was willing to make the tough decisions about how to deal with it. This government has.
Once completed, Hinkley Point C will provide a stable source of low-carbon, climate-friendly power for nearly six million homes – twice the number of homes in London. It will supply 7% of the UK’s electricity at full capacity.
Nuclear represents a significant low-carbon opportunity. The electricity it produces is green and reliable. With new nuclear designs we can be assured that the safety lessons of the past have been learned. And from the outset, the operator will be required to put money aside to cover decommissioning costs and a share of the waste management costs. So the question has come down to affordability and whether we can produce nuclear power without over-burdening bill-payers.
In reaching this point, the government has been careful to strike the right balance with EDF. We will continue to work to ensure that the final investment contract, based on these key terms, provides an attractive proposition for EDF and its investors as well as a good deal for UK consumers.
The government’s policy is that no support will be given to new nuclear unless similar support is provided to other types of low-carbon generation – and that is precisely what our electricity market reforms achieve.
And to protect consumers we have had unprecedented access to EDF’s books, allowing us to verify the balance of risk and return and make sure the developer has a fair, but not excessive, rate of return.
The developers will receive a so-called strike price for the electricity produced at Hinkley Point C of £89.50 per megawatt hour, fully indexed to CPI. This is good value for money compared to the alternative. Our full nuclear programme would see consumer bills reduced by around 10% compared to a non-nuclear future.
The strike price is competitive with large scale renewables and with gas-fired generation, based on current projections. It also provides price certainty in a volatile market.
We have pre-agreed arrangements to make sure the deal stays fair over time, including ensuring consumers can benefit from any gains made from the project coming in under budget, or from future refinancing or equity sales.
But these are not the only benefits for the people of Britain. Hinkley Point C will inject £16bn into the economy – with the potential for British firms to get the majority of the work. During construction, up to 25,000 jobs will be created, with a peak of around 5,600 jobs on-site. There will be around 900 permanent jobs at the plant during its operating life.
It will increase long-term energy security and resilience. Hinkley Point C will be a reliable, home-grown source of electricity that reduces our reliance on foreign gas imports and the associated volatile prices.
This this is not a deal at any price. This is a deal at the right price. This is a significant 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. It secures Britain’s nuclear future, and it secures Britain’s low-carbon future.