Ed Davey defends state-subsidised EDF-Chinese nuclear reactors

The British government and French utilities company EDF have signed a deal to build two nuclear reactors totalling £16bn at Hinkley, Somerset.

The new reactors will be built at Hinkley Point C, with the assistance of EDF's Chinese partners, China General Nuclear Power Group and China National Nuclear Corporation.

The Department for Energy and Climate Change estimates that the UK's new nuclear programme will save households £74 a year in today's prices by 2026-30. The 430 acre site, which will scale-back to 165 acres once operational, will generate enough electricity to power nearly six million homes once operational - or an area twice the size of London. 25,000 jobs will be created during construction, with 900 permanent jobs being brought to the area.

Energy secretary Edward Davey says that the move is an "excellent deal" for British customers, adding "For the first time, a nuclear power station in this country will not have been built with money from the British taxpayer."

But, the government's agreed purchase price for electricity of £92.50p per megawatt hour, which is twice the market price, guaranteed for 35 years and will rise in line with inflation, is a hefty subsidy.

City A.M. editor Allister Heath writes today:

If we assume that EDF will build two 1,600MW reactors, operating at 90 per cent efficiency over a 35 year lifespan, at a cost of £14bn, this implies a return on capital of at least 9.5 per cent. Does this number really need to be that high? I doubt it very much. What is wrong with seven per cent? Why can’t the plants be kept going for longer, thus spreading the cost?

The government needs to explain carefully why it believes it needs to pay such a large subsidy. We need to see all of the assumptions and all of the facts to make sure that this isn’t just another incompetent, giant rip-off.

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The plant's Chinese twin took five years to build, but it is expected that Hinkley Point will take 10.

Prime minister David Cameron says “This deal means £16bn of investment coming into the country... which is brilliant news for the South West and for the country as a whole. As we compete in the tough global race, this underlines the confidence there is in Britain and makes clear that we are very much open for business.”

Last week, chancellor George Osborne anticipated the agreement by announcing, whilst in China, that the country will now be able to invest in the UK’s nuclear projects.

EDF will have a 45 to 50 per cent stake in the project, with the Chinese groups having a combined stake of 30 to 40 per cent. Areva, the designer of the European Pressurised Water reactors (EPRs) that will be erected at Hinkley, will take a 10 per cent stake.

The construction will boost the nuclear industry here in the UK - they will be the first in about 20 years, and globally - in the wake of 2011's Fukushima disaster.

EDF is also working on proposals for two EPR reactors at Sizewell C in Suffolk.