Chancellor announces £2bn loan guarantees for Hinkley Point C nuclear power station

Government acts to accelerate the UK's nuclear construction programme by announcing loan guarantees for the Hinkely Point C nuclear power station.

Bernadette Ballantyne
21 September 2015

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Loan guarantees worth £2bn for the UK's first new nuclear power plant in 20 years were revealed this week by the Chancellor George Osborne while on a tour of China.

The support will be provided by Infrastructure UK and is intended to pave the way for a final investment decision by energy company EDF, supported by China General Nuclear Corporation and China National Nuclear Corporation, later this year. Further amounts are potentially available in the longer-term.

"It is further progress towards a final investment decision on a project which will provide reliable, affordable low carbon electricity for decades." Vincent de Rivaz, chief executive of EDF Energy

“Nuclear power is cost competitive with other low carbon technology and is a crucial part of our energy mix, along with new sources of power such as shale gas. So I am delighted to announce this guarantee for Hinkley Point today and to be in China to discuss their investments in Britain’s nuclear industry," said Osborne.

"It is another move forward for the golden relationship between Britain and China – the world’s oldest civil nuclear power and the world’s fastest growing civil nuclear power," he added

Vincent de Rivaz, chief executive of EDF Energy said that the announcement was futher progress towards a final investment decision.

"The government’s determination to bring about a renewal of infrastructure and to attract inward investment to the UK are demonstrated by this good news," he said. "It is further progress towards a final investment decision on a project which will provide reliable, affordable low carbon electricity for decades. We welcome the government’s support for the industrial participation by EDF and its Chinese partners," he said.

At the end of July EDF energy announced the preferred bidders for £1.3bn in contracts with a Balfour Beatty and NG Bailey joint venture being successful on the £460M electrical package. The six year project is expected to start in 2016 with design work and the construction phase in 2017. However full contract award in 2016 is subject to the final investment decision from EDF's board which must approve the investment of £17bn in debt finance to build the project.

“Nuclear power is cost competitive with other low carbon technology and is a crucial part of our energy mix, along with new sources of power such as shale gas." George Osborne

In October 2014 the European Commission approved UK government plans to subsidise construction and operation of the plant. EU commissioners voted 16 to 5 in favour of approving the UK's plans for the new reactors under slightly revised terms that include a sweetened “gain share” mechanism requiring EDF to pay back any excess profits to government and increasing the state guarantee that it pays to Treasury.  

This 35 year deal now says that 60% of any profit above a 13.5% return on investment will be passed back to the UK taxpayer – a higher than the originally agreed deal to share 50:50 any profit above 15%. However under the agreement, the UK government will still pay a guaranteed £92.50 /MWh “strike price” for electricity generated by the new plant over the 35 year subsidy deal – roughly twice the current wholesale price of power.

Announcement of the loan guarantees was welcomed by the Civil Engineering Contractors Association.

“CECA has long argued that the UK Government must commit to a long-term U.K. energy strategy which does not deter badly needed investment and today's announcement marks progress in the right direction after a period of delay. Our members will continue to work with Government and EDF to ensure that delivery of the new power station at Hinkley is undertaken safely and efficiently," said chief executive Alasdair Reisner.