A £25bn contract to build Hinkley Point C is expected to be signed within weeks, according to national press reports this week.
Ministers in the Department of Energy and Climate Change have reached an agreement with the French energy company EDF to develop Hinkley Point C, near Burnham-On-Sea, and are ready to approve the project after parliament’s summer recess.
The Guardian newspaper reports that David Cameron and China’s president, Xi Jinping, are expected to sign the deal at a meeting in October.
More than two thirds of the upfront investment costs for the controversial project will be provided by two Chinese companies, with Beijing keen to secure a greater stake in further nuclear power plants.
Hinkley has faced growing criticism from energy experts, who have questioned the rising costs of the electricity it would generate and whether it is right to subsidise nuclear while cutting money to renewables.
Analysts at HSBC said in a report published last week that Hinkley was “becoming harder to justify.”
As part of the contract, EDF and China General Nuclear will be responsible for any cost overruns in the construction of the plant, which is supposed to meet 7% of Britain’s electricity needs.
However, once it is in operation the government has agreed to pay £92.50 per megawatt hour (MWh) of electricity generated for the 35 years of the contract. This is well above the current wholesale price of electricity, which is about £50 per MWh.
The HSBC report said that European wholesale electricity prices are expected to fall from this level over the contract period, resulting in a “huge difference between UK forward prices and the Hinkley price.” This cost will ultimately be paid for in consumer bills.
Ministers say the subsidy represents value for money as it is the only realistic way of reducing UK carbon emissions while ensuring a consistency of supply.
EDF sources told the newspaper that it expects to see contracts signed in the early autumn. Last week the company announced selected preferred bidders for £1.3bn worth of contracts relating to the project, as we reported here.
Last month, the Austrian government mounted a legal challenge at the European court of justice against EU-granted subsidies for Hinkley, arguing that it is in breach of EU law and risks distorting the market. Ministers have dismissed the challenge as “weak”.
Environmental groups claim that Britain’s future electricity needs could be met by renewables alone.
