The Department for Business, Energy and Industrial Strategy’s deal for Hinkley Point C has locked consumers into a risky and expensive project with uncertain strategic and economic benefits, according to a new report from the National Audit Office.

The report finds that the Department has not sufficiently considered the costs and risks of its deal for consumers. It only considered the impact on bills up to 2030, which does not take account of the fact that consumers are locked into paying for Hinkley Point C long afterwards. It also did not conclude whether the forecast top-up payments are affordable.

BEIS announced on 29 September 2016 that it had reached a deal to support construction of the Hinkley Point C nuclear power station - the first to be built in the UK since 1995. The Department expects that it will generate around 7% of Great Britain’s expected electricity requirement from the mid 2020s.

Nuclear New Build Generation Company Ltd (NNBG) will build and operate Hinkley Point C. NNBG is owned 66.5% by Electricite de France and 33.5% by China General Nuclear Power Group.

Case for Hinkley Point C marginal and subject to significant uncertainty

When the Department finalised the deal in 2016 its value-for- money tests showed the economic case for Hinkley Point C was marginal and subject to significant uncertainty. Less favourable, but reasonable, assumptions about future fossil fuel prices, renewables costs and follow on nuclear projects would have meant the deal was not value for money according to the Department’s tests.

According to the NAO, the government’s case for the project has weakened since it agreed key commercial terms on the deal in 2013. Delays have pushed back the nuclear power plant’s construction, and the expected cost of top-up payments under the Hinkley Point C’s contract for difference has increased from £6 billion to £30 billion.

The NAO said:

“The Department’s capacity to take alternative approaches to the deal were limited after it had agreed terms. The government has increasingly emphasised Hinkley Point C’s unquantified strategic benefits, but it has little control over these and no plan yet in place to realise them.”

The report finds that the Department aligned its approach to the Hinkley Point C deal with its support for other low-carbon technologies - this means the private sector bears the risk that construction costs overrun. The NAO’s analysis suggests alternative approaches could have reduced the total project cost. The Department did not assess whether this would have resulted in better value for money for electricity consumers.

Risk remains that NNBG will seek further government  financial support

The NAO is warning that the risk also remains that NNBG will seek further financial support from the government, notwithstanding the contractual terms of the deal.

The reactor design for HPC is unproven and other projects that incorporate it are experiencing difficulties. Furthermore, EDF’s financial position has weakened since 2013.

According to the NAO, it will not be known for decades whether Hinkley Point C will be value for money.

The Department has, however, negotiated a deal that means some terms can be adjusted in consumers’ favour in future. The NAO is calling for the Department to now ensure it has the right oversight arrangements in place to manage the contract in a way that maximises Hinkley Point C’s value for consumers and taxpayers,

Amyas Morse, head of the National Audit Office said:

“The Department has committed electricity consumers and taxpayers to a high cost and risky deal in a changing energy marketplace. Time will tell whether the deal represents value for money, but we cannot say the Department has maximised the chances that it will be.”

Click here to read the report in full