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NAO slams government over ‘risky’ and ‘high cost’ Hinkley Point decisions

The National Audit Office has rounded on the government’s decision to pursue the £18 billion+ Hinkley Point C project, describing it as “high cost and risky”.

Late last week the government’s independent scrutiny body released a long-awaited report into the government and the last two energy departments’ handling of Hinkley Point, which stands to be one of the UK’s most significant investments into energy infrastructure. 

The project has been dogged by delays and controversies with many deriding its perceived expense and lack of value for money. Its detractors have warned that it risks driving up consumer bills with alternative sources available at cheaper rates, however the government has repeatedly set out the need for stable base load generation. 

However the NAO’s report has slammed many of the decisions the government took in the procurement process, which it says opened up consumers to substantive risks.

Amyas Morse, head of the National Audit Office, said: “The department has committed electricity consumers and taxpayers to a high cost and risky deal in a changing energy marketplace. Time will tell whether the deal represents value for money, but we cannot say the department has maximised the chances that it will be.”

The NAO said the government failed to assess alternative financing models – which it said would have exposed consumers to undue risk. However the NAO concluded that alternative models may have reduced the overall project cost and resulted in better value for money for electricity bill payers.

The government’s decision to negotiate solely with EDF instead of waiting for another nuclear developer to enter the fold – much like it had done with renewables developers through the CfD process – was also criticised. 

The auditor found that by the time a deal was finalised in September 2016, the government’s own value for money tests found the economic case to be marginal and “subject to significant uncertainty”, leading the NAO to conclude that the government had failed to sufficiently consider the costs and risk of the deal with consumers in mind. 

The NAO also took aim at the government’s rhetoric over low carbon alternatives. The government has repeatedly said that bills would be circa £20 higher annually if Hinkley Point was replaced by other renewables like onshore wind and solar, but the NAO said that the government’s working did not take into account the fact that the value of Hinkley’s CfD is locked in long after 2030, by which time various renewables will be cheaper.

Further criticism was levied at the government’s business case for Hinkley, which the NAO said had weakened since 2013; that the government failed to quantify alleged strategic benefits to pursuing the project and has “no plan to realise them”; and how a number of risks, not least EDF’s weakening financial position, had not been acknowledged. 

Concluding, the NAO said that while it is a widely shared view that the UK needs new nuclear, “the department’s deal for HPC has locked consumers into a risky and expensive project with uncertain strategic and economic benefits.”

“It will not be known for decades whether HPC will be value for money. This will depend on whether the current contractual arrangements endure, along with external factors including fossil-fuel prices, the costs of alternative low-carbon generation, and developments in energy technology and the wider electricity system.

“The department and other parts of government were concerned primarily with the strategic ramifications of not proceeding and the benefits of keeping the project off the government’s balance sheet. They did not consider sufficiently the costs and risks of the deal for consumers,” the report said.

The NAO has also called on the government to maintain and update a plan B should the project fall through at any point. Various renewable groups like the Green Alliance and the Energy and Climate Intelligence Unit have repeatedly called for the establishment and publication of such a back-up plan while simultaneously looking to place renewables and energy efficiency at the centre of it.