UK guarantees £2bn nuclear plant deal as China investment announced Published duration 21 September 2015

image copyright EDF Energy image caption EDF wants to build a new nuclear power station at Hinkley Point

Chancellor George Osborne has announced that the UK will guarantee a £2bn deal under which China will invest in the Hinkley Point nuclear power station.

Mr Osborne, who is in China, said the deal would pave the way for a final investment decision on the delayed project by French energy company EDF.

He said it would also enable greater collaboration between Britain and China on the construction of nuclear plants.

Reports suggest one such reactor could be built at Bradwell-on-Sea in Essex.

Energy Secretary Amber Rudd told the Financial Times she wanted Beijing to take the lead in developing new nuclear plants in Britain

She said China was expected to lead the construction of a Beijing-designed nuclear station at the Essex site.

EDF welcomed news of the government guarantee, but did not say if it put the project back on track.

Earlier this month, EDF admitted the Hinkley project in Somerset, which was intended to allow the plant to generate power by 2023, would be delayed

In February, the firm announced that it had pushed back its decision on whether to invest in the plant.

It cannot afford the estimated £24.5bn cost of the plant on its own, so has been looking for financial partners to invest, particularly in China. This has proved difficult, which is why the government has had to step in to guarantee part of the cost.

The new power station would be Britain's first new nuclear plant for 20 years and is expected to provide power for about 60 years.

Speaking in Beijing at a joint news conference with China's Vice-Premier Ma Kai, Mr Osborne said: "We want the UK to be China's best partner in the West. [This guarantee] paves the way for Chinese investment in UK nuclear [to help provide] secure, reliable, low carbon electricity for decades to come."

He also announced a new £50m joint research centre for nuclear energy.

image copyright Getty Images

The difficult economics of nuclear power

By Richard Anderson, BBC business reporter

Nuclear power plants are mind-bogglingly expensive to build.

In China, relatively cheap labour means they typically cost between £6bn-£10bn, with the state-controlled economy providing the necessary regulatory and financial support.

But in the free markets of the West, they cost many times more. No private company can afford this amount of money, particularly given it will be almost 10 years before the plant is operational and can begin generating a cash return.

This is why governments have to get involved, providing subsidies of one sort or another.

Hence George Osborne's announcement. The government has already guaranteed EDF a price - many would argue a very high price - for the electricity it generates at Hinkley, and now it is enticing the Chinese with investment guarantees.

Mr Osborne said Chinese companies would receive a substantial stake in the project, with the UK government acting as guarantor for the investment.

The guarantee will be provided by the government's Infrastructure UK Scheme, which provides finance for projects that have had difficulties raising money from private investors.

"We want low-carbon electricity and if we're going to hit our ambitious [emissions reduction] targets then we have to have nuclear," she added.

Analysis

By Robert Peston, BBC economics editor

What is most striking about George Osborne's Chinese tour is he is doubling his political and economic bet on the world's number two economy at a time when that economy is looking its most fragile for 30 years.

Today's manifestation of the China bet is confirmation of a long-trailed loan guarantee - initially worth £2bn but likely to rise substantially - to bind in Chinese and French nuclear giants to their promised massive £24.5bn investment in the Hinkley Point C new nuclear plant.

This is certainly long-term strategic planning for more power security by Osborne and the government (well they would say). With oil fluctuating at between $40 and $50 a barrel, Hinkley's prospective electricity looks scarily expensive.

The government has said Hinkley will provide up to 7% of Britain's electricity needs from 2023.

EDF, which will continue to control the venture, has agreed to provide electricity from Hinkley at a guaranteed minimum price of £89.50 per MW/hr for 35 years. Renewable energy technologies have been given a guaranteed price for 15 years.

Ms Rudd rejected criticisms that this was too expensive, saying nuclear power was "reasonably priced" compared with other low carbon sources of power.

Vincent de Rivaz, chief executive of EDF Energy, said the chancellor's announcement was "further progress towards a final investment decision" on the plant.

He said: "The chancellor's approval of the infrastructure guarantee is a clear sign of the government's commitment to Hinkley Point C. 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.

'Rip-off'

But Greenpeace's chief scientist Dr Doug Parr described the £2bn guarantee from George Osborne as "signing up the country for the ultimate rip-off deal".

He added: "Instead of locking two generations of UK consumers into paying billions to foreign state-owned firms, Osborne should invest in the flexible, smart, and truly clean energy system that can power a 21st Century Britain without leaving a pile of radioactive waste as legacy."

Other critics have raised concerns about the design of the new reactor, which will use new so-called EPR technology. Similar reactors being built in France and Finland are both late and way over budget.