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Ofgem rejects £80m in funding requests for Hinkley Point C grid connection

Ofgem has lowered the amount of money it will pay the National Grid to connect Hinkley Point C to the power network by £80m.

National Grid Electricity Transmission (NGET) had originally requested £717m to connect the UK’s first nuclear power station in over 30 years, but has been granted just £637m.

Half of the reduction came from rejecting £40m in “risk funding” NGET had sought to be included in the upfront cost of the link. Ofgem said additional funding could be sought for some risks, such as extreme weather or widespread flooding, if they are efficiently managed and take place during construction.

It also disallowed the additional costs associated with the new ‘T-Pylons’ used on the route as it said NGET had not “sufficiently justified all these costs or demonstrated that they represent value for money for consumers”.

Additional savings came from disallowing around £10m of costs relating to project management and support and excluding around £3m of costs associated with works that will be undertaken by the local Distribution Network Operator.

Although the savings may come as some good news for taxpayers, they are dwarfed by last month’s announcement that the cost of building Hinkley Point C would rise by nearly £3bn to between £21.5bn to £22.5bn.

As a monopoly, National Grid is able to charge consumers for upgrades to Britain’s electricity network though their energy bills.

Each household pays around 10p per day for the grid, or £36.50 every year. The new charge for the Hinkley project will be added to bills over 45 years, with National Grid shouldering the burden up front.

National Grid said that the decision on Hinkley will “not affect the delivery of the project, which is progressing well”.

It added: “We will be looking to provide further evidence to Ofgem to support our view of the capital costs for this project.”

It is not the first time the two have come to blows over the funding model of how to connect Hinkley to the power grid.

In July 2018, Ofgem said it was planning to introduce a new model which the grid said would not benefit consumers.

On Tuesday this week the regulator appeared to reverse that decision, reverting to a model which had been agreed in 2013.

Meanwhile, Julia Pyke, nuclear development director at Hinkley Point owners EDF Energy, has called for the UK to further embrace nuclear plants to allow the National Grid to become carbon-free as fast as possible.

“The UK needs around 40 per cent of the low-carbon electricity to be reliable – available on demand, even when the wind is still or in the dark of winter,” she said in a post on LinkedIn.

“Today, the only proven ‘firm’ and large-scale low-carbon technology is nuclear and it is still the largest source of low-carbon electricity in the UK.”

She urged the government to construct more nuclear power plants in the model laid out by Hinkley Point C as the only modern plan for building such a facility in the UK.

“In the UK, a very simple principle can reduce risk in nuclear new build and bring in cheaper finance. It is to copy as faithfully as possible a design that has already been approved and is under construction. Builders know exactly what needs to be done, how to do it and have a much clearer idea of the cost,” Pyke said.

“At Hinkley Point, the second of the two reactors under construction proves the point. Teams that worked on the first reactor find their experience makes the second easier to build.”

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