Engineering news
The UK Government and French state-owned EDF Group has reached an agreement on the investment contract for the proposed Hinkley Point C nuclear power station in Somerset.
This initial commercial agreement paves the way for a final contract to be signed early next year, after EU clearance has been secured for the state aid involved in the deal.
Hinkley Point C begin operating in 2023. Ministers have negotiated a price of £92.50 per megawatt hour for the 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 electricity price increasing annually in line with Consumer Price Index linked inflation. At full capacity the two reactors could provide up to 7% of the country's energy needs.
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. It is understood that China General Nuclear Power Group and China National Nuclear Corporation will be investing in the estimated £16 billion scheme.
Hinkley Point C will be the first new nuclear power station to be built since Sizewell B, which started generating electricity in 1995. Most of the existing fleet of nuclear stations are due to close in the 2020s.
It is expected that the proposed development will create some 25,000 jobs over the construction period, including 5,600 construction opportunities, thousands of supply chain jobs and 900 permanent jobs during its 60-year operation. The project will cut the UK's carbon emissions by nine million tonnes a year.
Energy Secretary Ed Davey said the deal represented "good value" following more than a year of intense negotiations. He 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."
Mr Davey added 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, he said.
Legislation will ensure that the operator of Hinkley Point C will be responsible for the full costs of decommissioning and its share of the costs of waste management. The Government has also negotiated that UK companies could benefit from getting up to 57% of the value of work
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.
"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."
Shadow energy secretary Caroline Flint said: "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."