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Treasury confirms UK Guarantees for Hinkley Point C and Mersey Gateway

The government has confirmed it will provide a UK Guarantee for EDF Energy’s new £14bn Hinkley Point C project, as revealed by Construction News.

Chancellor George Osborne confirmed the government will provide “guarantees for new nuclear” in his spending review speech and the Hinkley Point C project was confirmed as its beneficiary today, as revealed by Construction News in February.

Chief secretary to the Treasury Danny Alexander also confirmed Construction News’ exclusive that a UK Guarantee would be committed in the spending review to the Mersey Gateway project.

Mr Alexander also announced that the UK Guarantees scheme would be extended by two years to December 2016.

25 projects worth £13.5bn have now pre-qualified for the UK Guarantees scheme and the Treasury is also working with the Greater London Authority to support housing regeneration in Tottenham through the scheme.

EDF confirmed to Construction News in February that it was aware of the UK Guarantees scheme and was “examining its scope and applicability” though it had not made an official request at the time, contrary to reports.

The Treasury also insisted at the time it would not provide a UK Guarantee until talks over a strike price – the price at which generated energy can be sold – were confirmed.

The UK Guarantees scheme is a government initiative that aims to harness the public balance sheet to guarantee up to £40bn-worth of projects from the 500 schemes in the National Infrastructure Plan, which includes Hinkley Point C.

EDF has not yet made a final decision on whether to go ahead with the project, with “intense and constructive” talks over the strike price still continuing.

Energy secretary Ed Davey said at a press conference: “There is an intense negotiation with EDF on [Hinkley Point C] and when we conclude – if we conclude – then we will publish a strike price with all the terms and conditions.

“Of course one of the purposes of offering to EDF the opportunity to have one of the Treasury’s UK infrastructure guarantees is to help that project, but it’s actually separate from our negotiations on the strike price and I can’t give you a time for them.”

Though the debt element on Mersey Gateway was expected to be £500m, meaning Treasury would underwrite £250m, the total borrowing has been cut down after the client and bidder found “tens of millions” of savings across the life of the project.

Mersey Gateway project director Steve Nicholson described the UK Guarantee as a “helpful incentive”, adding it covered the risk of any deterioration in the project finance market in the next six months.

Construction risk, one of the main sticking points for investors on new nuclear schemes, can be covered by the UK Guarantees scheme.

But the government has insisted to date that it will not subsidise UK nuclear power plants and EDF Energy chief executive Vincent de Rivaz stated that construction risk would be taken on by the company, not taxpayers, when giving evidence to Energy and Climate Change Committee’s third public evidence session on ‘Building New Nuclear’ last year.

EDF Energy hopes to build four new reactors under the planned wave of new nuclear plants in the UK, at Hinkley Point in Somerset and Sizewell in Suffolk.

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