Treasury willing to back Hinkley nuclear plant with UK Guarantee
Exclusive: the Treasury has opened the door for a bid from EDF Energy for a state-backed guarantee as it comes under increasing pressure to revive the flagging UK new nuclear industry.
The Treasury is willing to negotiate an offer of a UK Guarantee, where the government uses its balance sheet to provide guarantees for major infrastructure schemes.
EDF has confirmed to CN that it is aware of the scheme and examining its scope and applicability.
New nuclear plants are not normally built without state aid, but the coalition government has insisted to date that it will not subsidise UK nuclear power plants and EDF Energy chief executive Vincent de Rivaz insisted that construction risk would be taken on by the company, not taxpayers, when giving evidence to Energy and Climate Change Committee’s third public evidence session on ‘Building New Nuclear’ last year.
CN understands that EDF has not yet submitted a bid for a UK Guarantee, but would potentially qualify for one with the Treasury willing to accept in principle an application from the energy giant for its multi-billion Hinkley Point C project.
It is understood that any discussions over a UK Guarantee would have to wait until after the conclusion of EDF’s discussions with the Department of Energy and Climate Change over contracts for difference, something EDF is also keen to finalise before any potential UK Guarantee discussions.
Several nuclear sources told CN that government-backed UK Guarantees have become a minimum requirement in shoring up new nuclear investment following Centrica’s retreat from the sector.
One nuclear finance source said that “the amounts of money you have to invest are so enormous that you have to be willing to take quite a gamble” on new nuclear schemes.
He added: “I am not sure that CfD is enough. Government is still working on the basis that this is an industry that is prepared to take risk on the chin over very long timescales, and it is getting harder and harder to rely on that to happen.”
The UK Guarantees scheme is a government initiative which aims to harness the public balance sheet to guarantee up to £40 billion-worth of projects from the 500 schemes in the National Infrastructure Plan, which includes Hinkley Point C.
An EDF Energy spokesman said: “We are aware of the scheme and are examining the applicability and the scope of the scheme as any other investor that potentially meets the qualifying criteria will be. We welcome any effort to encourage infrastructure and lower its costs for UK consumers.”
Centrica’s exit from new nuclear schemes it held an interest in with EDF Energy has left the door open to potential Chinese investors including China Guangdong Nuclear Power Corp, which has held talks with EDF over a proposed partnership.
Centrica this week confirmed it had pulled out of a 20 per cent option on the construction of new nuclear power stations at Hinkley Point and Sizewell, but continues to hold a 20 per cent share in eight existing nuclear stations.
Chief executive Sam Laidlaw said that since its initial investment the “anticipated project costs in new nuclear have increased” while the construction timetable “has extended by a number of years”.
Construction risk, one of the main sticking points for investors on new nuclear schemes, can be covered by the UK Guarantees scheme.
Centrica’s retreat is likely to strengthen EDF’s hand as discussions continue over contracts for difference, the price for electricity to be agreed with the government.
Several sources said Centrica’s retreat would lead to increased pressure for the government to use UK Guarantees on the nuclear new-build scheme, with one adding that Centrica’s decision leaves the government “backed into a UK Guarantees corner” on looking at alternative finance solutions.
One source added: “It’s a pity because the government is gradually getting its act together through CfDs which will ultimately provide an underpinning for the deals. But Centrica’s decision will back them into the UK Guarantees corner.”
EDF Energy hopes to build four new reactors under the planned wave of new nuclear plants in the UK, at Hinkley Point in Somerset and Sizewell in Suffolk.
A Treasury spokesperson said: “UK guarantees will give major projects worth up to £40 billion a unique opportunity to benefit from the strength of the UK’s balance sheet. These projects could come from a range of sectors including transport, utilities, energy and communications.”