Ministers and EDF have agreed on controversial £25bn development of Hinkley Point C, with most of upfront costs provided by Chinese companies

This article is more than 5 years old

This article is more than 5 years old

A £25bn contract to build the UK’s first new nuclear power plant in 25 years is expected to be signed within weeks.

Ministers in the Department of Energy and Climate Change have reached an agreement with the French energy company EDF to develop Hinkley Point C, near Bridgwater in Somerset, and are ready to approve the project after parliament’s summer recess.

The Guardian understands that David Cameron and China’s president, Xi Jinping, are expected to sign the deal at a meeting in the UK in October.

More than two thirds of the upfront investment costs for the controversial project will be provided by two Chinese companies. Beijing is keen to secure a greater stake in further nuclear power plants.

Hinkley has faced growing criticism from energy experts, who have questioned the rising costs of the electricity it would generate and whether it is right to subsidise nuclear while cutting money to renewables.

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Ministers have already paid the London law firm Slaughter and May more than £1.3m for its role in negotiating the final contract for the construction of the reactor.

Analysts at HSBC said in a report published last week that Hinkley was “becoming harder to justify”.

As part of the contract, EDF and China General Nuclear will be responsible for any cost overruns in the construction of the plant, which is supposed to meet 7% of Britain’s electricity needs.

However, once it is in operation the government has agreed to pay £92.50 per megawatt hour (MWh) of electricity generated for the 35 years of the contract. This is well above the current wholesale price of electricity, which is about £50 per MWh.

The HSBC report said that European wholesale electricity prices are expected to fall from this level over the contract period, resulting in a “huge difference between UK forward prices and the Hinkley price”. This cost will ultimately be paid for in consumer bills.

Ministers say the subsidy represents value for money as it is the only realistic way of reducing UK carbon emissions while ensuring a consistency of supply.

A senior government source said: “We have always been very clear that nuclear is an important part of our future energy mix.

“In the next few years we are going to have to decommission six out of eight of our existing nuclear power plants and we need to replace that generating capacity.

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“We are now on the verge of signing the contracts with Hinkley and we believe that will unlock further nuclear investment which in turn will reduce costs to consumers.”

Sources at EDF confirmed it expected to see contracts signed in the early autumn. Last week the company announced selected preferred bidders for £1.3bn worth of contracts relating to the project.

Last month, the Austrian government mounted a legal challenge at the European court of justice against EU-granted subsidies for Hinkley, arguing that it is in breach of EU law and risks distorting the market. Ministers have dismissed the challenge as “weak”.

Environmental groups claim that Britain’s future electricity needs could be met by renewables alone.



“Instead of locking two generations of consumers into paying over the odds for their electricity, the UK government should invest in the kind of clean energy sources that are getting cheaper by the year, don’t take ages to build and don’t cost billions to clean up,” said Dr Doug Parr, the chief scientist at Greenpeace UK.