NAO report slams Hinkley value

Economic case for multi-billion-pound nuclear power station is “marginal”

The government finalised the deal for the Hinkley Point C nuclear power station last year even though its own value for money tests showed the economic case for the new nulcear plant was ‘marginal and subject to significant uncertainty’, parliament’s spending watchdog has concluded.

The National Audit Office’s (NAO’s) critical new report on the project, the second it has produced, accuses the department for business, energy and industrial strategy (BEIS) of concluding a deal that has “locked consumers into a risky and expensive project with uncertain strategic and economic benefits.”

It says that “less favourable, but reasonable, assumptions” about future fossil fuel prices, renewables costs and follow on nuclear projects would have meant the deal would not have met the department's value for money tests.

It also concludes that BEIS had “not sufficiently” considered the costs and risks of its deal for consumers because it only examined the impact on bills until 2030, long before consumers will have stopped paying for the scheme through their electricity bills.

But the NAO finds that the department’s capacity to take alternative approaches to the deal were limited once it had agreed key commercial terms on the deal in 2013.

The NAO says the department did not assess whether taking alternative approaches, which its analysis says could have reduced the total project cost. would have led to better value for money for electricity consumers.

It recommends the introduction by BEIS of strong oversight arrangements so that the project’s future value for money for consumers can be maximised.

Amyas Morse, head of the NAO, said: “The department has committed electricity consumers and taxpayers to a high cost and risky deal in a changing energy marketplace. Time will tell whether the deal represents value for money, but we cannot say the department has maximised the chances that it will be.”

Responding to the report, Richard Black, director, of the Energy and Climate Intelligence Unit said: “The costs of renewables and smart power technology are changing much faster than the government predicted, and what might have looked good value 10 years ago looks much less so now. Arguably new nuclear build isn’t compatible with the government’s smart grid ambitions, and the NAO is surely right to recommend reviewing the case for nuclear power once in every parliament.”

Black added that he also thought the NOA was “right also to note that given EDF’s ongoing financial and technical woes, Hinkley C isn’t 100 per cent certain to be built.”

He concurred with the review’s conclusion that government needs a “plan B”. He proposed that “a combination of tried and tested approaches including energy efficiency, offshore wind and demand switching, all mature right now” could fulfil this requirement.

Tom Greatrex, chief executive of the Nuclear Industry Association, welcomed the NAO’s findings with regard to the strike price agreement for Hinkley Point C.

He observed: “While, as with other technologies, follow-on projects will cost less, the NAO analysis of the strike price also highlights that using a different financing structure could have resulted in a lower strike price. That is something government should reflect on as other new nuclear projects advance.”

Author: David Blackman, policy correspondent, Utility Week,
Channel: Operations & Assets , Policy & Regulation , Finance & investment

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