Taxpayer will guarantee £2bn loans to nuclear plant developers

PLANS for Britain’s first new nuclear plant in a generation have edged closer after ministers signed a £2 billion guarantee to help fund construction of the £24.5 billion plant.

George Osborne, the Chancellor, unveiled the loan guarantee for EDF’s proposed Hinkley Point plant during a visit to China for talks with state nuclear companies, which are expected to take a major stake in the project.

Mr Osborne said nuclear power was “a crucial part” of Britain’s energy mix, and hailed a “golden relationship between Britain and China – the world’s oldest civil nuclear power and the world’s fastest-growing civil nuclear power”.

The Government itself is not lending any cash to Hinkley Point’s developers, but is offering a guarantee to commercial lenders that the taxpayer would step in and repay them if the developers went bust.

Without such a guarantee, it is thought EDF and partners would struggle to secure financing for the project.

The initial loan guarantee, worth about £2 billion, is expected to be the first of several if the Somerset power plant proceeds. The Government has received EU state aid clearance to guarantee up to £16 billion in loans through Infrastructure UK, part of the Treasury, for the project.

Under the deal, Hinkley Point’s developers will pay Infrastructure UK an annual fee of 2.95 per cent of the value of the loan – about £59 million – in what is effectively an insurance premium in return for the guarantee.

The £2 billion loan has to be repaid by 2020.

The Government has also agreed a controversial subsidy deal for Hinkley Point that will mean households paying double the current market price of power for electricity generated by the plant.

The project has faced mounting criticism in recent weeks from those who fear it is poor value for money, especially as it faces repeated delays.

EDF admitted earlier this month that Hinkley – originally due to start generating power in 2017 – would miss its latest target of 2023.

The original subsidy deal was announced in October 2013, but EDF has since struggled to finalise funding.

Doug Parr, chief scientist for Greenpeace UK, said the Government’s loan guarantee announcement was “a PR smokescreen to give the impression that this project is moving forward when it’s actually bogged down in a swamp of troubles”.

Amber Rudd, the Energy Secretary, has indicated she hopes investors will take a final decision to proceed during a state visit to the UK by Chinese president Xi Jinping in late October.

If built, Hinkley could generate enough power to provide 7 per cent of the UK’s electricity, powering about six million homes.

As part of the deal, Chinese nuclear companies are expected to be allowed to lead in the development of reactors at another site, Bradwell in Essex.