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State aid approval for Hinkley Point C nuclear power plant

First new nuclear power station in a generation has moved an important step closer. 

The first new nuclear power station in a generation has moved an important step closer, as the European Commission announced that it has approved the Hinkley Point C State aid case.

New nuclear power stations like Hinkley will be vital in the next decade for Britain’s energy security as most of the country’s existing nuclear stations are due to close before 2023. New nuclear power stations will also be key to cutting the carbon emissions from Britain’s electricity industry in the UK’s future low carbon energy mix.

Hinkley will generate a stable source of clean power to nearly 6 million homes once it is up and running, and will provide 25,000 jobs during construction. UK companies could benefit from getting more than 50% of the work, and thousands of jobs are expected to go to local people.

The State aid case included both the proposed Contract for Difference, which provides the developer with an increased price certainty for the electricity generated by the plant, and the proposed UK Guarantee for the project, which will help unlock debt finance.

Last October’s agreement in principle with EDF, the developer, remains in place, and there has been further agreement to strengthen arrangements for benefits to be shared with consumers if the project comes in under budget, or if the project’s return exceeds a certain level. This ensures that consumers won’t pay more than they have to whilst providing a reasonable return for the investors.

The Government and EDF are continuing to work together to finalise the Hinkley project, including the full terms of the Contract for Difference and the financing arrangements for the project, which includes support from the UK Guarantee. UK Guarantees are designed to facilitate the development of infrastructure that would otherwise find it difficult to obtain finance due to the current state of capital markets.

Energy and Climate Change Secretary Ed Davey said:

“This is an important next step on the road to Britain’s first new nuclear power station in a generation. While there is much work still to do before a final contract can be signed, today’s announcement is a boost to our efforts to ensure Britain has secure, affordable low carbon electricity in the 2020s.

“After a thorough, detailed and independent analysis of our proposed project with EDF, this decision shows the European Commission agrees that this is a good deal for consumers and enables us now to proceed to the next stage.”

Hinkley Point C represents the start of investment in a new fleet of nuclear power stations replacing old, polluting power plants and supporting a skilled, low-carbon future with increased energy security and resilience from a safe, reliable, home-grown source of electricity.

EDF Group and other investors will be responsible for funding the project, which will be paid for through energy bills like all other electricity supplies.

Building a new fleet of nuclear power stations could reduce household bills by around £95 in 2030. Moreover, for the first time ever, the operator of the plant will be responsible for the full costs of decommissioning and its share of the costs of waste management.

Notes to Editors:

  1. All the terms are subject to contract and the Secretary of State deciding to make a direction under section 10 of the Energy Act 2013. The Government and EdF continue to engage on the full detail of the Contract for Difference (CfD) and Guarantee. Ultimately, a CfD would only be offered to the project company, NNB Generation Company Limited (NNBG), if the Government considers the contract to be value for money and in line with our policy of not giving support to new nuclear unless similar support is also made available more widely to other types of generation. Any risks borne by HM Treasury by providing a Guarantee would be paid for by NNBG and at commercial rates. The UK Guarantees Scheme is open to all eligible infrastructure projects, including those in the renewable energy sector.
  2. The key terms are set out below. All prices referred to in this press release, including these notes, are in 2012 prices. Taken together, these terms would help ensure an appropriate allocation of risk, giving NNBG enough certainty to build the plant and helping to meet one of the Government’s key objectives of achieving decarbonisation of electricity supply at least cost.

    • Strike Price of £89.50/MWh fully indexed to the Consumer Price Index. Price benefits from upfront reduction of £3/MWh built in on assumption that EdF will be able to share first of a kind costs of EPR reactors across Hinkley Point C and Sizewell C sites. If the final investment decision is not taken on Sizewell C, Strike Price for Hinkley Point C will be £92.50/MWh.

    • Contract difference payment duration for each reactor of 35 years. Contract term for a reactor will be reduced if that reactor does not reach its Start Date within its Target Commissioning Window.

    • Gain share arrangements where (i) savings made on the construction of Hinkley Point C and (ii) on project outperformance or equity sales that increase investors’ realised equity returns above the base case would be shared. Equity gain share arrangements will last for life of the project.

    • Arrangements whereby the Strike Price would be adjusted downwards to reflect changes to the amount of tax payable by the project company in certain circumstances relating to the shareholder funding and tax structuring of NNBG.

    • There will be an option for an Indexation Reopener to match any re-financing structure adopted for the project (for example, partial indexation based on the proportion of fixed rate debt). To the extent that there is such a reopener, the Strike Price will be adjusted on an economically neutral basis in terms of the return to NNBG to reflect the adjusted indexation proportion.

    • Arrangements whereby the Strike Price could be adjusted, upwards or downwards, in relation to operational and certain other costs (including business rates, and balancing and transmission charges) at certain fixed points (including through opex reopeners at 15 and 25 years after the start date of the first reactor

    • Arrangements whereby the Strike Price could be adjusted, upwards or downwards, in relation to certain future changes in law (including in respect of specific tax clearances, and uranium and generation taxes).

    • Changes in law which represent no more than the continuous improvement or development of good practice for the on-going civil generation nuclear industry will not be covered as part of the Change in law arrangements, except insofar as concerns the opex reopeners or where they impact nuclear third party liability insurance limits or where it is a change in the regulatory basis whereby the relevant regulators move away from As Low As Reasonably Possible (ALARP) or Best Available Techniques (BAT).

    • Reference Price for contract same as standard baseload generation reference price, calculated as Season ahead GB baseload price index and related to the market into which the power is physically delivered.

    • Arrangements whereby Hinkley Point C would be protected from being curtailed without appropriate compensation. If export of power from Hinkley Point C is curtailed by the operator of the national transmission system and NNBG receives less compensation than is available under current market arrangements it will be able to claim compensation for this difference in respect of any power it has sold on the Season Ahead market.

    • Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG cover or in certain circumstances where market cover in the nuclear insurance market is no longer available. In certain circumstances, where Hinkley Point C is shut down due to insurance arrangements not being available, compensation will be provided for such shutdown.

    • NNBG will, subject to conditions, receive compensation in the event of a political shut down of Hinkley Point C (by either a UK, EU or international Competent Authority) other than for certain reasons including health, nuclear safety, security, environmental, nuclear transport or nuclear safeguards.

    • The arrangements for political and nuclear insurance related shutdown compensation include the right to transfer to Government, and for Government to call for the transfer to it of, the project company which owns Hinkley Point C. The compensation arrangements would be supported by an agreement between, amongst others, the Secretary of State for DECC and the investors.

    • There will be an obligation on EdF and NNBG in relation to trading and reporting if EdF provides market services to NNBG for the sale of the HPC forecast output to ensure that EdF will not derive a competitive advantage.

    • The contract may be terminated upon the failure to fulfil conditions precedent or the occurrence of certain specified termination events.

  3. In the Energy Act 2008 we legislated to ensure that operators of new nuclear power stations will have a Funded Decommissioning Programme (FDP) to ensure secure financing arrangements are in place to meet the full costs of decommissioning and their full share of waste management and disposal costs. Each new nuclear power station built in the UK must have a FDP in place before nuclear-related construction can begin
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