Hinkley subsidies quintuple to £29.7 billion

The estimated bill for subsidies for Hinkley Point C under the contracts for difference scheme has soared to £29.7 billion, the National Audit Office (NAO) has said.

The figure is nearly five times as much as the original estimate of £6 billion, which was calculated in October 2013 when the government agreed the contract.

The value of the top-up payments increased “due to reductions in projected wholesale prices”, the NAO said in a report. The CfD scheme sees generators paid the difference between the wholesale price at which they sell their electricity and an agreed ‘strike price’.

Under the 35-year contract awarded to Hinkley the government agreed to an inflation adjusted strike price of £92.50/MWh. It will fall to £89.50/MWh if the company proceeds with a second new nuclear plant at its Sizewell C site.

A spokeswoman for Decc said: “Nuclear is not just a nice to have. It is an essential part of our plan for a 21^st century energy system that will power homes and businesses with reliable, low carbon electricity.

“Hinkley will generate enough low carbon electricity to power 6 million homes and around £10 from consumer bills will pay for it once it is up and running.”

Although the CfD top-up payments are paid by suppliers through the ‘supplier obligation’ levy, increases in their cost will not lead to larger overall bills for consumers, as they will be offset by lower wholesale electricity prices.

However, it could put pressure on the government to reform the Levy Control Framework (LCF) to take account of changing prices if it extends the mechanism beyond its current end in 2020/21. The top-up payments for CfDs are set to be included within LCF, meaning a fall in wholesale prices could lead to the budget being blown. Hinkley is not expected to come online until 2025 at the earliest.  

Cost projections for CfD payments for Hinkley:

Source: NAO

Last week EDF revealed it was clear to make a final investment decision on the £18 billion project after a consultation with its employees via its Central Works Council came to an end. In a statement it said: “The full period of consultation required by law has reached its end and the opinion of the [council] is now considered as having been given.”

At a meeting of the council, representatives from three of the four unions with seats on EDF’s board of directors supported a resolution stating that they are “not in a position to give their opinion about the project”. Representatives from the fourth abstained from voting.