Loan guarantee for Hinkley Point C

Friday, 28 June 2013

The UK government has announced that EDF Energy's proposed Hinkley Point C nuclear power plant is eligible for a multi-billion pound loan guarantee.

In a speech to Parliament on 27 June, chief secretary to the Treasury Danny Alexander outlined the government's infrastructure plan, which includes measures aimed at enabling up to £110 billion ($167 billion) of private sector investment in electricity infrastructure by 2020. The plan includes the extension of the UK guarantees scheme by two years to December 2016. A guarantee under this scheme is expected to help EDF Energy to secure financing for its Hinkley Point C project at a lower rate than would be possible without government backing.

UK's capacity challenge

Alongside the raft of measures relating to electricity market reform announced 27 June, UK energy regulator Ofgem released its a report into electricity capacity. According to the report, electricity margins could tighten in the winter of 2015-2016 to between around 2% and 5%, resulting in a supply disruption being a one-in-twelve-year event. The probability of a supply disruption is currently one-in-47 years.

By 2015-16, Ofgem expects total installed capacity to fall to 76.8 GW, from the 77.9 GW capacity estimated for this coming winter (2013/14). In its earlier Electricity Capacity Assessment Report published in October 2012, Ofgem had projected installed capacity to be 79.3 GW by 2015-16.

The heightened risk to the UK's electricity security of supply over the next few years is a result of the closure of about 20% of the country's ageing conventional plant over the next decade combined with low levels of investment in the sector due to uncertainty over government policy.

EDF Energy is planning to build two Areva EPR reactors at Hinkley Point. Planning consent for the estimated £14 billion ($21 billion) project was announced earlier this year, but EDF Energy is still locked in negotiations with the government over terms of the so-called contracts for difference (CfDs). These are intended to set a long-term price of electricity generation from low-carbon sources.

A key element of a CfD is the ‘strike price’- the price that generators receive for electricity. Should the market price be below the strike price, then generators are paid the difference; should the market price exceed the strike price, then generators must pay back the difference.

While the terms of the CfD strike price for the Hinkley Point C project are not yet finalised, the government has now announced the draft strike prices for renewable projects. These range from initial rates of £100 ($152) per megawatt hour (MWh) for onshore wind to £305 ($464) per MWh for tidal stream and wave technologies. The strike price for offshore wind would initially be £155 ($236) per MWh, dropping to £135 ($205) per MWh by 2019. The renewable CfDs would run for fifteen years and be linked to inflation.

The energy policies announced this week would result in £60 billion ($91 billion) worth of investment in new nuclear plants by 2030, according to energy and climate change secretary Ed Davey. CfDs form a core component of the government's strategy to bring forward investment in affordable low-carbon electricity generation - including renewables, carbon capture and storage and new nuclear,”he said.

Researched and written
by World Nuclear News