UK energy bill payers will hand £2bn a year to EDF for new power stations | Hinkley Point C

UK energy bill payers will pay £2 billion a year in subsidies to EDF, the French company building two nuclear power stations, government figures show.

French government-owned EDF will be entitled to £1 billion in annual payments once Hinkley Point C, in Somerset, is connected to the grid in 2030. The sum is due under the contracts for difference system which guarantees low-carbon energy companies a fixed price for the electricity they produce.

Separately, £1bn will be added to bills through a separate nuclear tax scheme to fund Sizewell C, in Suffolk, a 3.2 gigawatt (GW) project also led by EDF.

The result is an increase of around £2 billion in bills, funding the cost of two plants which together will produce around a sixth of the electricity Britain was using at peak demand so far this year, the equivalent of 6 million homes.

A government spokesperson said: “We are overturning a legacy where no new nuclear power was delivered to usher in a golden age of nuclear power, securing thousands of good, skilled jobs and billions in investment. »

The government hopes that the additional cost of new nuclear reactors can be offset in the future by the stable “baseload” generation they offer, which can curb the rising costs of balancing volatile output from energy sources such as solar and wind.

This balancing cost is expected to rise to around £2 billion this year, according to the Nuclear Industry Association. The government said Sizewell alone could save £2 billion a year in the future, adding that the impact on bills during the construction period would likely be around £1 per household per month.

Chancellor Rachel Reeves has promised to cut energy bills by an average of £150 per household from April by reducing green levies.

The assessments of the nuclear subsidy were revealed in documents published by the Office for Budget Responsibility (OBR), which assesses the impact of economic policy. The OBR said EDF would receive £1bn in the first year of operation at Hinkley, which is due to come into operation in 2030 after 12 years of construction.

“In 2030-31, contracts for difference (CfDs) are expected to generate £4.6 billion in government revenue, including £1 billion to fund subsidies to Hinkley Point C nuclear power station for its first year of planned production,” the OBR said.

This subsidy is the result of an agreement concluded between EDF and the conservative-liberal-democrat coalition government in 2013.

Then-energy secretary Ed Davey, now leader of the Liberal Democrats, agreed to a “strike price” guaranteeing the French state-owned company would receive £92.50 for every megawatt hour (MWh) of electricity produced at the 3.2GW plant.

The strike price has risen with inflation to around £133 and is expected to reach £150 in 2030, according to the Daily Telegraph, which was first to report the Hinkley subsidy.

The wholesale cost of electricity is much lower, now around £80 per MWh, meaning EDF will be able to claim the shortfall from consumers and businesses who use its electricity, thanks to the CfD deal.

However, government sources said that if Hinkley Point C had generated electricity during the surge in energy prices that followed Russia’s invasion of Ukraine, it would have saved energy users more than £4 billion.

Construction of Sizewell C, which has not yet started and is expected to be completed in the 2030s, will also drive up bills.

From January, energy bills will be inflated by a levy supporting the construction of the plant, adding £10 a year. The levy is expected to raise £700 million, but will double until 2030 to fund Sizewell, whose price tag is expected to reach £100 billion.

In practice, the cost of the plant could increase. Hinkley Point C was initially expected to cost £18 billion, but was subject to several time and cost overruns; EDF predicted last year that the final bill could reach £46 billion.