David Cameron hails nuclear power plant deal as big day for Britain

Planned reactors at Hinkley will be first to begin construction since Fukushima disaster and will come online in 2023

David Cameron has hailed the UK government agreement with French-owned EDF to build the first new British nuclear power station in 20 years, saying it was a very big day for Britain and would kickstart a new generation of nuclear power in the UK.

The energy secretary, Ed Davey, claimed it was a great deal for consumers and would result in energy bills falling by more than £75 by 2030.

He added: "If we don't make these essential investments … we're going to see the lights going out."

The 35-year deal, struck at £92.50 per megawatt hour, is twice the current wholesale market rate for electricity, and will be attacked by some as a massive subsidy to help another non-carbon fuel, with the funds going to the French taxpayer and the Chinese government, which has a minority stake to build the new plant at Hinkley C in Somerset.

Hinkley Point map
Hinkley Point map Photograph: guardian.co.uk

With the deal between the UK government and EDF announced on Monday morning, Cameron said: "This is a very big day for our country: the first time we've built a new nuclear power station for a very long time."

He said the deal would be the first of many "kick-starting again this industry, providing thousands of jobs and providing long-term, safe and secure supplies of electricity far into the future".

The subsidy inherent in the strike price reflects the risk in constructing the plant, uncertainty over the future market and the need to reduce the UK's dependence on carbon fuels, such as coal and gas.

But the deal comes at a politically sensitive time as the government fends off criticism that government-imposed green subsidies are pushing up the price of electricity.

Cameron has rejected a Labour proposal for a 20-month government-imposed freeze on energy prices.

The shadow energy secretary, Caroline Flint, said Labour supported nuclear power, but claimed: "David Cameron is now in the ridiculous position of saying that they can set prices 35 years ahead for the companies producing nuclear power, while insisting they can't freeze prices for 20 months for consumers while much-needed reforms are put in place."

Davey said 57% of the jobs and contracts would go to UK contractors, a way of rebuilding the country's nuclear skills.

The two planned pressurised water reactors at Hinkley Point C will be 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 built 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.

In details released on Monday morning, the strike price – the fixed price at which output will be sold – has been set at £89.50 per megawatt hour for electricity produced at the new power station. That price will be fully indexed to consumer price inflation. But the price, at 2012 prices, is dependent on EDF moving ahead with a second plant, Sizewell C, in Suffolk. If it decides not to proceed, another £3/MWh will be added to the strike price for Hinkley, bringing it up to £92.50/MWh.

The reduction reflects the fact that advanced costs for a "first of a kind" nuclear power station are high, but reduce with each successive new plant as economies of scale kick in, the official said. The strike price covers not only the costs of building Hinkley Point C, but all decommissioning and nuclear waste management costs.

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

EDF, which is majority-owned by the French taxpayer and whose investment is likely to be guaranteed by the UK Treasury, will have to start depositing money into a special fund for such liabilities from the start of the project. The government has still not yet completed the process of agreeing a system of storing the waste.

The agreed strike price should allow EDF to make a 10% rate of return on the project. Costs would fall for taxpayer if EDF managed to refinance its package in the future, so sharing the gain.

The strike price is expected to be reviewed 7.5 years, 15 years and 25 years after the commercial operations date of the first reactor as well at the end of the contract term. Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG cover.

• This article was changed on 21st October. And earlier version said that 7% of UK electricity is enough to power 7m homes. The correct figure is 5m.


Patrick Wintour, political editor

The GuardianTramp

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