Why taxpayers will share the pain of cost of building Sizewell C nuclear power plant
It was as long ago as 1982, back in the pre-privatisation days of the Central Electricity Generating Board, that the idea of building a new nuclear power plant in Suffolk – Sizewell C – was first mooted.
At that time, construction had yet to begin on the neighbouring Sizewell B, which for now remains the youngest of Britain’s operating nuclear power plants.
The first planning application was filed as long ago as 1989 and there have been countless false starts since.
The theoretical cost of construction was pushed up when Margaret Thatcher‘s government insisted that any company building a new nuclear power station would also have to have funding in place for not only its construction but also for the disposal of waste and the eventual decommissioning of the plant.
That proved a major obstacle to new nuclear build which was then further held up by Tony Blair’s reluctance to take on opponents of new nuclear build in his own party – although, in 2006, he eventually committed to the cause, as did his successor, Gordon Brown.
Hinkley Point C, the UK’s first new nuclear power station in a generation, was the upshot.
New financing key to unlocking nuclear
Yet the construction of the Somerset plant is years behind schedule. EDF, the French energy giant building it and which will construct Sizewell C, originally envisaged it opening in 2017. Hinkley Point C is also billions of pounds over budget.
And the coalition government’s decision to guarantee EDF a fixed price for the energy generated at Hinkley Point C, which was necessary to persuade the French company to go ahead with the project, was subsequently heavily criticised.
The National Audit Office (NAO) said the agreement had locked consumers into a “risky and expensive” project – although, ironically, the deal now looks good value following this year’s spike in wholesale electricity prices.
The NAO’s report did, though, make subsequent governments wary, once more, of new nuclear build.
Theresa May immediately demanded a review of Hinkley Point C on becoming prime minister and, even though her government ultimately approved the project, she also took note of a suggestion in the NAO’s report that new funding models be considered for subsequent new nuclear power stations.
That, in a nutshell, is why it has taken so long for Sizewell C to finally get off the ground. These plants are so monstrously expensive to build that no private sector company is willing to bear all of the risks themselves without some support from government. It is also why the likes of Japan’s Hitachi and South Korea’s Kepco have reluctantly walked away from building new nuclear plants at Wylfa on Anglesey, Oldbury in Gloucestershire and Moorside in Cumbria.
So key to unlocking the project has been coming up with a new way of financing it.
The solution
The government’s solution is the funding model known as Regulated Asset Base (RAB) – the means by which other major infrastructure projects, such as the £4.3bn Terminal 5 at Heathrow Airport, have been financed.
Under this arrangement, rather than guarantee whoever builds Sizewell C a set price for the electricity it generates, taxpayers will be taking risk alongside other investors.
This is why the government is investing an initial £700m in the construction of the plant although, with the total cost likely to come in at between £20-£30bn, that will only go so far.
The other elements in the RAB model include electricity consumers – households and businesses – paying for the plant while it is still under construction through their bills.
This is how, for example, the £4.13bn Thames Tideway tunnel now under construction is being financed. A share of the cost of the project, which is aimed at preventing sewage spills into the Thames estuary as well as future-proofing London’s sewerage system for expected population growth, is being met by customers of Thames Water on their bills.
The arrangement means taxpayers share in the pain of any cost-overruns. Other crucial aspects of the RAB model include an ‘economic regulatory regime’ (ERR), overseen by an independent regulator, who determines the extent to which investors and taxpayers will share the risks by setting the amount of revenue that EDF will be allowed as it builds Sizewell C.
Unknown sums but less risk
The government has yet to make clear the sum that billpayers will have to contribute towards the new power station but newspaper reports have suggested it will be in the region of an additional £1 per month per customer.
The Department for Business, Energy and Industrial Strategy said today that the lower cost of financing a large-scale nuclear project through this scheme was “expected to lead to savings for consumers of at least £30bn on each project throughout its lifetime” compared with the existing arrangements governing the financing of Hinkley Point C.
Big Carl, the world’s biggest crane, in action at Hinkley Point C nuclear power plant near Bridgwater in Somerset
So in theory, while there is a risk attached to building Sizewell C, the funding model proposed appears to be less risky than the way in which Hinkley Point C has been financed. The ultimate cost to electricity consumers in the latter case was dictated simply by a decision made a decade ago on the price that EDF would be promised for its power. It currently looks good value but, for much of the last decade, it has not.
Yet the RAB model does have its critics.
Less incentive to control costs
Steve Thomas, emeritus professor of energy at the University of Greenwich, has argued that, by removing construction risk from EDF, the company has less of an incentive to control construction costs. With Hinkley Point C, EDF has had to bear the cost of any over-runs. With Sizewell C, taxpayers would be on the hook.
Professor Thomas argues that this is particularly worrying because he believes EDF’s cost estimates are too optimistic. He has also argued that the £1-a-month levy on household bills, should it come to pass, is also potentially flawed because of assumptions it is making about borrowing costs.
Less risky, for now, appears to be the ownership of Sizewell C. Objections to the involvement of the Chinese state-owned company China General Nuclear, originally raised by the May government, have resulted in the company now being bought out of its interest in Sizewell C. The project will instead be jointly owned by EDF and the UK government – although there has been speculation that new investment could also be brought in from the sovereign wealth fund of the United Arab Emirates.
There are, though, some other objections. The idea of building small modular reactors by companies like Rolls-Royce has won support on the basis that the technology could be cheaper and more scalable than big projects like Sizewell C. They would also, in theory, involve less cost in adapting the national grid.
Prime Minister Boris Johnson during a visit to EDF’s Sizewell B nuclear power station in Suffolk.
The EDF question
Another risk concerns EDF itself. The company recently had to be bailed out and fully nationalised by the French government following the spike in wholesale prices.
But this means EDF is now effectively run at the behest of the French government. France is also anxious to build new nuclear power plants. Should EDF become cost-constrained it is perfectly plausible that the French state would direct it to focus on its domestic projects rather than its ones overseas.
There have already been hints of this.
EDF’s former chairman and chief executive Jean-Bernard Levy, who was effectively fired by President Macron after opposing nationalisation, was a strong supporter of Sizewell C but was hampered by the French government’s constant demands for more information on the project.
One final risk is that electricity demand does not increase in the way that the government is assuming and that Sizewell C’s output may not be needed.
However, with electricity demand projected to double as the UK decarbonises, that feels less worrisome than some other factors – and particularly now Vladimir Putin’s war on Ukraine has highlighted the importance of the UK having more indigenous sources of energy.
A former Conservative cabinet minister has thrown his hat into the ring to become the inaugural chair of Britain’s new independent football regulator.
Sky News has learnt that Chris Heaton-Harris, who stood down as an MP at July’s general election, is among those who applied for the role ahead of a deadline on Friday.
Mr Heaton-Harris is himself a qualified football referee who has officiated at matches for decades.
A former Northern Ireland secretary and chief whip under Rishi Sunak and Boris Johnson respectively, he said in 2022 of his part-time career as a football official: “I took a [refereeing] course and that was it, I’ve been going ever since.
“Football has done wonders for me throughout my life so I would recommend it to everybody.”
Mr Heaton-Harris is among a large number of people who have applied for the role of chair at the Independent Football Regulator (IFR), according to officials.
A publicly available timetable for the search says that interviews for the £130,000-a-year post will end on 11 December, with an appointment expected in the new year.
It is the second time that the government has embarked on a search for a chair for the IFR after an earlier hunt was curtailed by the general election.
The role will be based at the watchdog’s new headquarters in Manchester and will require a three-day-a-week commitment.
The Football Governance Bill had its second reading in the House of Lords this week, as part of a process that will represent the most fundamental shake-up in the oversight of English football in the game’s history.
The Labour administration has dropped a previous stipulation that the regulator should have regard to British foreign and trade policy when determining the appropriateness of a new club owner.
The IFR will monitor clubs’ adherence to rules requiring them to listen to fans’ views on issues including ticket pricing, while it may also have oversight of the parachute payments made to clubs in the years after their relegation from the Premier League.
The top flight has issued a statement expressing reservations about the regulator’s remit, while it has been broadly welcomed by the English Football League.
The IFR’s creation will come with the Premier League embroiled in a civil war over Manchester City‘s legal battles emanating from allegations that it breached the competition’s financial rules.
Keep up with all the latest news from the UK and around the world by following Sky News
Next week, the 20 Premier League clubs will meet for a lengthy shareholder meeting, with a vote on amended Associated Party Transaction rules hanging in the balance.
The league needs 14 clubs to vote in favour for the rule changes to be passed.
Contrary to earlier expectations, however, a detailed discussion on a financial distribution agreement between the Premier League and EFL is unlikely to be on the agenda.
A Department for Culture, Media and Sport spokesperson said: “The process for recruiting the Independent Football Regulator chair is under way but no appointment decisions have been made.
“We do not comment on speculation.”
This weekend, Mr Heaton-Harris could not be reached for comment.
Pizza Hut’s biggest UK franchisee has begun approaching potential bidders as it scrambles to mitigate the looming impact of tax hikes announced in last month’s Budget.
Sky News has learnt that Heart With Smart (HWS), which operates roughly 140 Pizza Hut dine-in restaurants, has instructed advisers to find a buyer or raise tens of millions of pounds in external funding.
City sources said this weekend that the process, which is being handled by Interpath Advisory, had got under way in recent days and was expected to result in a transaction taking place in the next few months.
HWS, which was previously called Pizza Hut Restaurants, employs about 3,000 people, making it one of the most significant businesses in Britain’s casual dining industry.
It is owned by a combination of Pricoa and the company’s management, led by chief executive Jens Hofma.
They led a management buyout reportedly worth £100m in 2018, with the business having previously owned by Rutland Partners, a private equity firm.
One source suggested that as well as the talks with external third parties, it remained possible that a financing solution could be reached with its existing backers.
HWS licenses the Pizza Hut name from Yum! Brands, the American food giant which also owns KFC.
Insiders suggested that the increases to the national living wage and employers’ national insurance contributions (NICs) unveiled by Rachel Reeves would add approximately £4m to HWS’s annual costs – equivalent to more than half of last year’s earnings before interest, tax, depreciation and amortisation.
One added that the Pizza Hut restaurants’ operation needed additional funding to mitigate the impact of the Budget and put the business on a sustainable financial footing.
The consequences of a failure to find a buyer or new investment were unclear on Saturday, although the emergence of the process comes amid increasingly bleak warnings from across the hospitality industry.
Keep up with all the latest news from the UK and around the world by following Sky News
Last weekend, Sky News revealed that a letter co-ordinated by the trade body UK Hospitality and signed by scores of industry chiefs – including Mr Hofma – told the chancellor that left unaddressed, her Budget tax hikes would result in job losses and business closures within a year.
It also said that the scope for pubs and restaurants to pass on the tax rises in the form of higher prices was limited because of weaker consumer spending power.
That was followed by a similar letter drafted by the British Retail Consortium this week which also warned of rising unemployment across the industry, underlining the Budget backlash from large swathes of the UK economy.
Even before the Budget, hospitality operators were feeling significant pressure, with TGI Fridays collapsing into administration before being sold to a consortium of Breal Capital and Calveton.
Sky News recently revealed that Pizza Express had hired investment bankers to advise on a debt refinancing.
HWS operates all of Pizza Hut’s dine-in restaurants in Britain, but has no involvement with its large number of delivery outlets, which are run by individual franchisees.
Accounts filed at Companies House for HWS4 for the period from 5 December 2022 to 3 December 2023 show that it completed a restructuring of its debt under which its lenders agreed to suspend repayments of some of its borrowings until November next year.
The terms of the same facilities were also extended to September 2027, while it also signed a new 10-year Pizza Hut franchise agreement with Yum Brands which expires in 2032.
“Whilst market conditions have improved noticeably since 2022, consumers remain challenged by higher-than-average levels of inflation, high mortgage costs and slow growth in the economy,” the accounts said.
It added: “The costs of business remain challenging.”
Pizza Hut opened its first UK restaurant in the early 1970s and expanded rapidly over the following 15 years.
In 2020, the company announced that it was closing dozens of restaurants, with the loss of hundreds of jobs, through a company voluntary arrangement (CVA).
At that time, it operated more than 240 sites across the UK.
Mr Hofma and Interpath both declined to comment.
The UK economy grew by 0.1% between July and September, according to the Office for National Statistics (ONS).
However, despite the small positive GDP growth recorded in the third quarter, the economy shrank by 0.1% in September, dragging down overall growth for the quarter.
The growth was also slower than what had been expected by experts and a drop from the 0.5% growth between April and June, the ONS said.
Economists polled by Reuters and the Bank of England had forecast an expansion of 0.2%, slowing from the rapid growth seen over the first half of 2024 when the economy was rebounding from last year’s shallow recession.
And the metric that Labour has said it is most focused on – the GDP per capita, or the economic output divided by the number of people in the country – also fell by 0.1%.
Reacting to the figures, Chancellor of the Exchequer Rachel Reeves said: “Improving economic growth is at the heart of everything I am seeking to achieve, which is why I am not satisfied with these numbers,” she said in response to the figures.
“At my budget, I took the difficult choices to fix the foundations and stabilise our public finances.
“Now we are going to deliver growth through investment and reform to create more jobs and more money in people’s pockets, get the NHS back on its feet, rebuild Britain and secure our borders in a decade of national renewal,” Ms Reeves added.
The sluggish services sector – which makes up the bulk of the British economy – was a particular drag on growth over the past three months. It expanded by 0.1%, cancelling out the 0.8% growth in the construction sector
The UK’s GDP for the the most recent quarter is lower than the 0.7% growth in the US and 0.4% in the Eurozone.
The figures have pushed the UK towards the bottom of the G7 growth table for the third quarter of the year.
It was expected to meet the same 0.2% growth figures reported in Germany and Japan – but fell below that after a slow September.
The pound remained stable following the news, hovering around $1.267. The FTSE 100, meanwhile, opened the day down by 0.4%.
The Bank of England last week predicted that Ms Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.
Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.
The Bank’s quarterly report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.
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