I have often blogged about the huge Hinkley Point C (HPC) project to build a couple of nuclear power reactors in Britain. The reason I keep revisiting this project is that so many different problems with nuclear power are wrapped up in it. Financing, international involvement, substandard parts, national security, cost overruns, and other issues can be found in discussions of the project. Members of the British parliament have recently asked the Secretary of State for the Department of Business, Energy and Industrial Strategy (BEIS) to clarify some aspects of the financial arrangements for HPC.
In 2015, the British government announced that they would provide about two and a half billion dollars of support in the form of a guarantee for the HPC through their Infrastructure UK program. The European Union approved of the grant the previous year on the grounds that it was a legitimate way for the U.K. to meet goals for low-carbon power generation. Strangely enough, despite the existence of the guarantee, EDF, the financially troubled French-owned utility that is building the reactors for HPC said that if they failed to fulfill the contract due to financial problems, they would not call on the guaranteed money for help. The members of Parliament are justifiably confused about why the guarantee even exists if it will never by exploited.
Part of the HPC agreement says that if the price of electricity generated by HPC rises above an average "strike price" for electricity, then the government will step in and pay the difference, referred to as "top up" payments. If the price of electricity generated by HPC falls below an average "strike price" for electricity, then the difference will be refunded to the consumers. Customer will not pay anything until the HPC reactors are operational.
Currently, the strike price for electricity in the agreement is set at about one hundred and eleven dollars per megawatt hour. If a planned reactor is built at Sizewell, the strike price will fall to about one hundred and seven dollars per megawatt hour. The agreement fixes the cost to consumers of electricity from new generating sources regardless of market price.
The HPC agreement strike price takes inflation into account by being indexed to the Consumer Price Index. The members of Parliament asked whether the index could "move down in the event of negative inflation, as well as up at a time of rising inflation." They were told that that would be checked as well as the question of whether the HPC contract could be moved to the Retail Price Index instead of the Consumer Price Index to better reflect market conditions.
The members of Parliament also wanted to know more about the "top up" payments. There are big differences between the estimates of the government contract negotiators and the estimates of the National Audit Office (NAO). ("The NAO scrutinizes public spending for Parliament. Its public audit perspective helps Parliament hold the government to account and improve public services.")
The government representatives said that their estimate of between thirteen billion dollars and twenty-five billion dollars was based on the "Green Book" which is a standard way for the government to estimate the cost of projects. In contrast, the NAO estimate of thirty-six billion dollars was based on the cost of borrowing money for projects. In essence, the government contract representatives were saying that the two numbers had been arrived at by two different methodologies that were used for different purposes.
Although the HPC project contracts have been signed and the project is moving forward, there are still a lot of unanswered questions that are causing fierce debate within the government.
