The returns for investors in Britain’s first new nuclear plant in two decades are much higher than for other projects.
The government-supported Hinkley Point project could see investors, including French utility EDF, earn a return of up to 21 per cent over the lifetime of the project, according to a report by analysts from Carbon Connect, chaired by former British conservative energy minister Charles Hendry.
EDF plans to start operating the first new nuclear reactor at the Hinkley Point C site in southern England in 2023 and the Government will guarantee a loan to finance the project as well as a fixed minimum price for the electricity it generates for 35 years.
"Expected equity returns on Hinkley Point C are around 19 to 21 per cent, substantially higher than expected equity returns on Private Finance Initiative (PFI) projects and regulated electricity network assets," the report said today.
By comparison, returns are typically 12 to 15 per cent for PFI projects and 8 to 10 per cent on regulated networks, it said.
The European Commission is currently investigating whether Britain's support for nuclear complies with European Union state aid rules after the EU's executive arm questioned in its investigation report whether returns of 10 per cent on a nuclear project are justified.
The government's support mechanism for nuclear power is unprecedented in Europe, driven by the Government’s desire to see new nuclear plants replacing ageing and polluting power stations that are closing down over the coming years.
Besides EDF, the investors in Hinkley Point include France's Areva and Chinese state-owned companies CGN and CNNC.
Carbon Connect also said the way in which the government and EDF struck their preliminary agreement was not competitive or transparent.
"Competition is desirable both for affordability, by exerting downward pressure on bids for projects, and to a lesser extent public support, in that it can provide a more transparent guide as to how revenue support is allocated," the report said.
The European Commission expects to make a decision on whether it will approve the UK's state aid support for Hinkley Point by the end of the year, and EDF is unlikely to make a final investment decision on the project before then.
Two other investor groups have also unveiled plans to build new nuclear plants in Britain. Japan's Hitachi is developing up to five reactors at two sites, and France's GDF Suez has taken Japanese partner Toshiba on board to build three new nuclear units at a location in northern England. These projects are also expected to receive similar state guarantees.