Nuclear Industry Association (NIA) Chairman, Lord Hutton, signalled a clear change in view from the nuclear industry on how new reactors should be funded. Speaking at the opening of today’s sixth NIA Nuclear New Build Conference he echoed comments made last week by NIA Chief Executive Tom Greatrex in response to the National Audit Office (NAO) report on the deal for Hinkley Point C calling for Government to examine taking on some of the construction risk to reduce overall costs.
Lord Hutton said, “This is where I think we as an industry need to continue to work with government to help them understand this – is that with the construction risk being with the developer, then the higher cost of capital impacts upon the final strike price.”
“While the strike price is much lower than for large scale low carbon power agreed at the same time, and is lower than the average of all projects having received a contract for difference, the trajectory for future projects needs to be downwards.”
The sentiment expressed by other delegates at the conference clearly backed the NIA view, showing the industry recognises that something that needs to be done to lower strike prices. Given that the cost of capital is so deterministic of the cost of electricity generated by a nuclear station (more than for any other technology) anything that can be done to lower the cost of capital will reduce the overall price to the bill payer. A Government backed or partly owned project (either could work) will be able to leverage on the borrowing rates that Governments can achieve, which will make projects much cheaper overall.
Lord Hutton further outlined this in his speech, “The NAO report looked at a number of other large and strategically significant infrastructure projects under development in the UK, and different financial models being used. While there may not be a precise read-across from HS2 or the Thames Tideway to new power stations, the high level analysis of the impact on a strike price, is worthy of further consideration.”