National Audit Office: Hinkley Point C deal locks consumers into risky and costly project

The Department for Business, Energy and Industrial Strategy’s deal for Hinkley Point C has locked consumers into a risky and expensive project with uncertain strategic and economic benefits, says a new report from the National Audit Office (NAO).

When the Department finalised the deal for the new plant in 2016 its own value-for- money tests “showed the economic case for Hinkley Point C was marginal and subject to significant uncertainty”.

The report finds that the department wanted to ensure the private sector would bear the risk of construction costs overrunning. The NAO analysis suggests alternative approaches, where government took on some risk, could have reduced the total project cost but the Department did not assess whether this would have resulted in better value for money.

In considering the costs and risks for consumers BEIS only considered the impact on bills up to 2030, and did not take account of the fact that consumers are locked out of cheaper options because they are  paying for Hinkley Point C long afterwards.

Since the deal started in 2013 the expected cost of top-up payments under the Hinkley Point C contract for difference has increased from £6 billion to £30 billion.

The NAO said it would “not be known for decades whether Hinkley Point C will be value for money. This will depend on whether the current contractual arrangements endure, along with external factors – in particular, future fossil fuel prices, the costs of alternative low-carbon generation, and developments in energy technology and the wider electricity system.” The department must  ensure it has the right oversight arrangements in place to manage the contract in a way that maximises Hinkley Point C’s value for consumers and taxpayers.

Further reading

Hinkley Point C risks prompt Moody’s to downgrade EDF’s credit rating

Hinkley a ‘well-designed transfer of risk’, says Hammond

Decc opposes CMA remedies on nuclear CfD transparency, auction visibility

New nuclear build: will plants be in competition for support?

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