Hinkley nuclear power station gets go-ahead as coalition signs off EDF deal

Building to commence on Britain's first nuclear power station in 20 years as government hands subsidy to French company

Britain is to embark on building its first nuclear power station for two decades on Monday as the coalition hands a multibillion subsidy to France's EDF with help from a state-owned Chinese firm.

The two planned pressurised water reactors at Hinkley Point C, Somerset, are the first to start construction in Europe since Japan's Fukushima disaster and the first in the UK since the Sizewell B power station came online in 1995.

The new reactors, which will cost £14bn, are due to start operating in 2023 if constructed on time and will run for 35 years. They will be capable of producing 7% of the UK's electricity – equivalent to the amount used by 5m homes.

After months of delay, the news came as the coalition has come under intense pressure over rising electricity bills. British Gas and SSE have both announced price rises for customers of close to 10% and Ed Miliband's promise to freeze energy bills has struck a chord with voters. There are expected to be further rises announced by the big six energy companies this week.

Over the weekend the archbishop of Canterbury, Justin Welby, waded into the row over energy prices, warning that the latest wave of hikes looks inexplicable. Welby, a former oil executive, insisted the big six energy companies had an obligation to behave morally rather than just maximising profit.

"They have control because they sell something everyone has to buy. We have no choice about buying it," he told the Mail on Sunday. "With that amount of power comes huge responsibility to serve society."

The guaranteed subsidies promised by the government for Hinkley Point C will lead to accusations that ministers are loading a further cost on spiralling energy prices by again requiring British taxpayers to subsidise nuclear power. The coalition counters that similar subsidies are going to other carbon-free industries such as renewables and that the country needs the energy security and steady base load that nuclear provides. Gas prices, although relatively low, are predicted to rise.

Britain is taking a sharply different route to Germany, which has decided to phase out nuclear power, and Italy, which has scrapped a planned nuclear programme. France, traditionally the nuclear enthusiast, has pledged to cut atomic power to 50% of its electricity mix from 75% today.

The strike price – the guaranteed rate to be paid for electricity produced at the Somerset site – will be announced as £92.50 per megawatt hour on Monday, following two years of complex negotiations. That is nearly twice the market price of energy. The price is guaranteed for 35 years and will rise in line with inflation.

Hinkley Point map

EDF was thought to have started negotiations demanding a figure of £100, with the Treasury's gambit being £80.

The price will fall to £89.50 if EDF presses ahead with a second plant at Sizewell, Suffolk. Chancellor George Osborne removed another obstacle last week when he announced that Chinese firms would be allowed to invest in civil nuclear projects in the UK.

Ministers will come under twin attack from green groups, both for endangering safety and providing subsidy, as well as from enthusiasts for shale gas for failing to put their faith in cheap gas, currently nearly half the cost of nuclear.

The energy secretary, Ed Davey, is preparing to counter green groups by arguing that onshore or offshore wind could not fill the energy gap created by the decommissioning of the first wave of power stations. By some estimates, Hinkley Point C will generate the equivalent output of 6,000 onshore wind turbines.

EDF's longtime partner, China General Nuclear Power Group, possibly in combination with China National Nuclear Corporation, is expected to have a 30% to 40% stake in the consortium, with Areva taking another 10%, according to French weekend newspaper reports. The deal is thought to provide a 10% return on EDF's investment.

The coalition policy is being led by the Liberal Democrats – the party that had, in principle, opposed nuclear power right up until its party conference in September. The deal is a huge gamble for both the government and EDF, since projecting the state of the electricity market and wholesale prices 35 years ahead is fraught with risk.

Michael Fallon, the Conservative energy minister, signalled another review of the green subsidies imposed on energy firms, but Davey said: "It only takes a GCSE in maths to recognise that green subsidies are not pushing up prices. It is a fact that 47 % of energy prices come from wholesale prices and they have risen 50% in five years."

• This article was amended on 21 October 2013. An earlier version said that 7% of the UK's electricity was enough to power 7m homes. The correct figure is 5m. It was further amended on 22 October 2013 to clarify that the strike price of £92.50 is per megawatt hour.


Patrick Wintour

The GuardianTramp

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