A new nuclear power station. Hinkley Point C.

So Hinkley Point C has been given the go-ahead at last. It will create more than 25,000 jobs and is expected to start generating electricity in 2025, supplying 7% of the UK’s electricity. But there has been a lot of talk about the cost to consumers.

Background

The UK is committed to nuclear power as part of the mix of electricity-generating schemes. With many nuclear power stations reaching their use by date, new power stations are required. This is to replace the older sites that will be decommissioned over the next decade. Additionally, coal-fired power stations will soon be phased out.

The UK is also committed to producing more electricity from renewable sources. In 20 years, the bulk of the UK’s electricity will come from renewables and nuclear power. A smaller proportion will come from gas-fired power stations. Imported electricity through interconnectors to France, Netherlands and Ireland will account for the rest.

Current nuclear power stations in the UK

There are eight active nuclear power station in the UK: Dungeness, Hartlepool, Heysham 1, Heysham 2,  Hinkley Point B, Hunterston B, Sizewell B, and Torness. Sizewell B will remain in operation. However, the other reactors are expected to close between 2023 and 2030. This will leave a large hole in UK electricity generation.  ‘Life extensions’ of up to 10 years beyond their original forecast have already been given to these reactors.

New nuclear power stations

In 2010 the government named eight sites that would house the next generation of nuclear power stations. However, both EON and RWE npower have since pulled out and the Scottish government stated no nuclear power plants would be built in Scotland. This has left EDF Energy to build four new reactors at two sites, the first of which is Hinkley Point. China will help to fund the massive investment of £18bn.

The other nuclear power stations still in the pipeline are: Wylfa in Anglesey, Oldbury in Gloucestershire, Sellafield in Cumbria, and Bradwell in Essex. These are by existing sites where the reactors have been decommissioned.

The cost to the consumer

The main talking point has been over the ‘strike price’ of £92.50 per megawatt hour. The government has guaranteed EDF this price for the electricity it generates over the course of 35 years. If the wholesale price is lower than this at the time, then consumers can expect to make up the difference on the price they pay for electricity.

This price was agreed in 2013 when wholesale electricity prices were expected to be higher than the current forecasts. Given that £92.50 per megawatt hour (a megawatt hour is 1,000 kilowatt hours) is double the current wholesale cost of electricity, consumers are rightly concerned. However, if the wholesale price was to rise above the strike price, then EDF will have to refund the difference.

Subsidies are nothing new

Consumers already pay subsidies on energy projects. The wholesale price of electricity only accounts for about 50% of the price consumers actually pay. There are many other costs involved, one of which is the Renewables Obligation. Energy companies invest this in renewable projects for electricity generation. Of the price consumers pay per kWh for electricity, 1.56p is the cost currently paid towards the Renewables Obligation at the time of writing.

The government estimates consumers will each pay £10-£12 per year towards electricity generated by Hinkley Point C. Others put a higher price on this. If this means less electricity is imported from abroad (which costs more) then it will keep prices down. Consider that the two reactors at Hinkley Point will take 10 years to build and become operational. The cost is around £18bn and is the largest energy project in British history. EDF needed an incentive to commit to this enormous investment over a decade of uncertainty.

 

 

Perfect Clarity can help businesses save money on their energy and water contracts. Call 020 3372 6517 for more information.