Read our Special Report: 鈥�How UK鈥檚 first nuclear reactor for 25 years will work鈥�
The UK is to build its first new nuclear reactors for 25 years. The government has signed a deal with EDF Energy setting out the terms under which EDF will build and run the reactors 鈥� in particular, how much the company will be paid.
The two reactors will be built at Hinkley Point on the Somerset coast. Once they are up and running, which is expected to be in 2023, the reactors will supply about 7 per cent of the UK鈥檚 electricity.
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EDF and its partners, which include , will fund the construction of the reactors, without direct financial help from the government. 鈥淔or the first time, a nuclear power station in this country will be built without money from the British taxpayer,鈥� says Edward Davey, the energy and climate change secretary.
However, in return . This 鈥渟trike price鈥� of 拢89.50 per megawatt hour is almost double the average cost of electricity in the UK in 2012, which was about .
Bitter bill to swallow
On the face of it, that looks like bad news for UK consumers, who are facing rises in the cost of energy of this winter. But the bills from Hinkley Point are 10 years away, and the UK鈥檚 Committee on Climate Change says that current rising prices are driven largely by rising gas costs.
鈥淭he price is higher than I would have hoped for,鈥� says Jim Watson of the UK Energy Research Centre in London. 鈥淚鈥檓 not sure that consumers have got the best deal. But to be fair, the government has been negotiating with a single bidder.鈥�
A second consortium, Horizon Nuclear Power, had previously expressed interest in building new nuclear reactors but suffered a setback in 2012 when its main investors pulled out. This lack of competition put EDF in a strong negotiating position.
鈥淎mid understandable public concern about rising bills, it鈥檚 important to remember this investment will help mitigate the impact of increasing costs,鈥� says John Cridland, the director-general of the Confederation of British Industry. 鈥淲hatever we do, energy prices are going to have to go up to replace ageing infrastructure and meet climate change targets 鈥� unless we build new nuclear as part of a diverse energy mix.鈥�
EDF is considering building . The agreed strike price assumes that this will go ahead. If EDF does not follow through, the strike price will go up to 拢92.50 per megawatt hour. That鈥檚 because building multiple reactors creates economies of scale, allowing EDF to accept a lower price.
鈥淥ne plant is expensive and the worst way to do your nuclear economics,鈥� says Watson. It鈥檚 best to build multiple reactors, as China is currently doing, as this will ensure the resulting electricity is as cheap as possible.
Since Hinkley won鈥檛 come online until 2023, later than previously expected, Watson says it will be crucial to add extra renewables to the grid in the meantime, and improve energy efficiency. 鈥淒oing other things at the same time is really important.鈥�
