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  • October 4th, 2013

UK to seal nuclear power deal within weeks, says energy minister Michael Fallon

A deal over subsidies for Britain’s first new nuclear plant in a generation could now be agreed within weeks, Michael Fallon, the energy minister, has said.

The comments are the most confident yet over the prospects for agreement with EDF over the financial terms for building reactors at Hinkley Point in Somerset. Negotiations have dragged on since last year, missing numerous deadlines set by the French energy giant.

There are said to be just one or two issues now outstanding in the talks. Any deal will be subject to intense scrutiny because the subsidies will be paid for on energy bills by UK households and businesses for decades to come.

Agreement with ministers is seen as the biggest hurdle to the project going ahead, but is not the only one.

Any deal will also need EU state aid approval, and EDF must secure financial backing from partners to help share the estimated £14bn cost of the project, which is not expected to be running until the early 2020s.

British Gas owner Centrica, which had a 20pc stake in the project, pulled out in February citing delays and spiralling costs.

EDF has been in long-running talks with China General Nuclear Power Group (formerly China Guangdong Nuclear Power Group) over taking up to a 49pc stake in the project. A deal is said to be likely to follow on from agreement over subsidies.

Ministers plan to offer EDF a long-term contract to guarantee a so-called “strike” price for each megawatt-hour of power that Hinkley would generate over at least three decades, with the market price for electricity topped up by levies on consumer bills.

Stephen Lovegrove, permanent secretary at the Department of Energy and Climate Change (DECC), and Lord Deighton, Commercial Secretary to the Treasury, are leading the talks for government.

Talks hit stalemate in the spring when the Treasury offered EDF a price of about £80/MWh, far lower than the £100/MWh EDF had asked for. The sides are said to be closing in on a deal in the £90s.

In June, ministers offered EDF financial guarantees for £10bn of loans for the project to help reduce its cost of capital. Ministers have insisted they will not overpay for Hinkley, but critics argue they are in a weak bargaining position because no other nuclear developer is ready to start building in the UK.

The Government wants a new fleet of nuclear plants to replace Britain’s existing ageing reactors, most of which are due to be retired next decade.

A DECC spokesman said: “Negotiations remain ongoing between government and EDF on the potential terms of an investment contract for Hinkley Point C. No agreement has as yet been reached. A contract will only be offered if it is value for money, fair and affordable, in line with government policy on no public subsidy for new nuclear and consistent with state aid rules.”

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