Idea of better deal on Hinkley Point 'fanciful’, says former DECC perm sec

Written by Tamsin Rutter on 10 October 2017 in News
News

Stephen Lovegrove told MPs that nuclear power plant deal with EDF would have collapsed had his department tried to renegotiate terms

Former DECC permanent secretary said Hinkley Point does not present 'provide a bad deal for the consumer'. Credit: Paul Heartfield

Stephen Lovegrove, former permanent secretary at the Department for Energy and Climate Change, has said officials negotiated the best possible deal on the Hinkley Point nuclear power plant within the constraints of the policy positions held by the 2010 coalition government.

Lovegrove, now permanent secretary at the Ministry of Defence, said the deal with French-state owned company EDF and China’s CGN did not “provide a bad deal for the consumer” and that attempting to renegotiate it would have caused delays and put Britain’s decarbonisation objectives at risk.

“Candidly, the idea that the deal would not have collapsed if we had sought to renegotiate it is fanciful,” he told MPs during an inquiry into whether Hinkley Point provides value for money on Monday.


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Under the deal signed off by prime minister Theresa May in September 2016, EDF agreed to shoulder all costs (then estimated at £18bn) of building Hinkley Point C, the first new nuclear power station in the UK in more than 20 years which aims to produce 7% of the UK’s electricity by 2025.

The Conservative/ Liberal Democrat coalition in power during negotiations was clear that it wanted to keep construction costs off the government’s balance sheet, and the deal struck sees EDF paid directly by consumers and only when the plant starts generating electricity.

But public finance watchdog the National Audit Office has since criticised officials for their handling of the contract, saying that alternatives were not properly explored and it will be decades before it becomes apparent whether the project offers value for money.

On 9 October members of the PAC, which is chaired by Labour MP Meg Hillier, questioned the senior civil servants involved on why they did not seek to renegotiate or cancel the deal, particularly as the cost of alternative sources of low-carbon energy have been falling for the past few years.

Offshore wind contracts awarded last month offer companies a price of £57.50 per megawatt hour for 15 years, much lower than the £92.50 promised to EDF for generating electricity at Hinkley Point over 35 years.

Lovegrove pointed out the nuclear energy is less intermittent than alternatives, and that EDF – whose rising construction costs have already reduced their projected returns on investment to between 8.2 and 8.5% – had been facing legal action from trade unions and was considering pulling out of the deal.

“It was a matter of genuinely intense debate in France, and if we had tried to squeeze the terms more, I think that the chances of the deal surviving would have been negligible,” he said.

“Even if that had not been the case… [renegotiating would have] put a huge amount of delay into the process – which had already been delayed for a long time. It would have put at risk the decarbonisation objectives enshrined in the 2008 Act.”

Lovegrove was backed by Alex Chisholm, current permanent secretary at the Department for Business, Energy and Industrial Strategy – which was formed last year after a merger of DECC and the Department for Business and Industrial Strategy.

Chisholm said that in the event of delays in construction the department has several options available to ensure the UK has sufficient electricity, and that the right incentives were in place to ensure EDF limits setbacks to the delivery schedule. 

He also insisted that the newly formed government in 2016 did not simply sign off on Hinkley Point without interrogating the deal put together by his department.

“[It was] one of the most intense pieces of work I’ve ever been involved in, generating hundreds of hours of work over a six-week period – looking at it financially, strategically, legally, diplomatically, technically,” he said.

“And it was only after that very exhaustive consideration that the government confirmed that it was prepared to go ahead on those terms.”

Asked if there are any new risks for the project in the light of the UK’s decision to leave the European Union, Chisolm denied that quitting the EU’s nuclear safety watchdog Euratom was likely to lead to additional costs for the taxpayer.

He said the government would shortly be introducing legislation to ensure a nuclear safeguards regime is maintained at the same level and standard as the one operated by Euratom, and he didn’t “anticipate any particular difficulties arising” from that.

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