How to Finance a Power Station

Getting a new business venture off the ground can be challenging at the best of times, with contractors to commission and various funding options to consider. But how do you manage if the project you need to finance is a nuclear power station?

Hinkley Point Reactors – Are they Necessary?

Two new reactors are to be constructed at Hinkley Point in Somerset under government plans to upgrade the UK’s network of nuclear power stations and move towards low-carbon power. Supporters of Hinkley Point C say it will reduce the risk of energy supply shortages and lead to lower bills for consumers. But the funding deal struck by the government has sparked controversy, with critics saying it will increase energy prices for homes and businesses and that it’s breaking previous government pledges that any new reactors in the UK would be built by the private sector.

Hinkley Point C is being constructed by a consortium, led by French energy company EDF. Investors include two state-owned Chinese companies, which will hold up to a 35% stake. The price tag is £16bn and the deal includes a ‘strike price’ of £92.50 for every megawatt hour of energy generated – almost twice the current wholesale cost of electricity. If wholesale costs remain at the current level, EDF will receive the balance from customers; in other words, consumer bills will rise. But if the cost of electricity rises above £92.50 per Mwh, EDF will have to refund this money to customers, so bills could go down.

So will the investment pay off for the UK? Prime Minister David Cameron says the deal will create 25,000 jobs and energy secretary Ed Davey claims the ‘vast majority’ of construction workers will be British. EDF is responsible for keeping the project on time and budget, meaning that if costs escalate, the UK taxpayer won’t pick up the bill. And Mr Davey insists that a new fleet of power stations will reduce bills by more than £75 a year per household by 2030.

For EDF, a 10% profit has been calculated into the figures – not a bad return for any business. Hinkley Point C will be completed by 2023 and will produce seven percent of the UK’s energy.

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