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EU green light for Hinkley as construction cost estimate soars

The European Commission has estimated Hinkley Point C will have construction costs of £24.5bn, significantly more than the initial estimate of £16bn.

The EC this morning cleared Hinkley Point C to go ahead after concluding it falls within EU state aid rules.

EDF Energy had originally put the cost at £16bn, of which £14bn was expected for construction and £2bn for development.

It is understood the £24.5bn relates to the overall financing pay-back cost.

EDF later disputed the EC’s cost appraisal.

It said: “In October 2013 EDF said that the construction costs for the two nuclear power units at Hinkley Point, expressed in 2012 money, are expected to be £14bn.

“In addition to the construction costs, the project and its partners will have incurred £2bn of other costs before first operation. These include land purchases, achieving the different consents, construction of a spent fuel storage facility and preparing the 900 strong team which will run the station.

“This means total costs to first operation are expected to be close to £16bn, expressed in 2012 money. These figures have not changed.”

Modifications to the financing package offered by UK authorities have been cited as a key reason for the EC to grant state aid approval.

The EC said the fee for a UK Guarantee to be provided by Treasury, and first revealed by Construction News, was “significantly raised” reducing the subsidy by more than £1m with an equivalent gain for the Treasury.

Another measure introduced is that as soon as EDF Energy’s overall profits (return on equity) “exceed the rate estimated at the time of the decision, any gain will be shared” with the government.

Commission vice-president Joaquín Almunia, in charge of competition policy, said: “After the commission’s intervention, the UK measures in favour of Hinkley Point nuclear power station have been significantly modified, limiting any distortions of competition in the Single Market.

“These modifications will also achieve significant savings for UK taxpayers. On this basis and after a thorough investigation, the commission can now conclude that the support is compatible with EU state aid rules.”

The EC added that during its investigation, the UK authorities demonstrated that support for the plant would address a “genuine market failure, dispelling the Commission’s initial doubts”.

The UK argued that EDF would not be able to obtain the necessary financing due to its “unprecedented nature and scale”.

Under a gain-share mechanism, an increase in EDF profit of only one percentage point, will generate savings of more than £1.2bn.

The gain-share will be in place for the entire lifetime of the project and if the construction costs turn out to be lower than expected, the gains will also be shared.

Hinkley Point C will require debt financing of £17bn and will eventually have a capital cost of about £34bn.

Austria confirms legal challenge

The Austrian government will launch a legal challenge to the EC decision, it confirmed today.

It will bring an action before the European Court of Justice.

In a statement, it said that Hinkley Point C set a “bad precedent” as guaranteed feed-in tariffs had been reserved for renewable energy.

 

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