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.
“Liberation day” was due to be on 1 April. But Donald Trump decided to shift it by a day because he didn’t want anyone to think it was an April fool.
It is no joke for him and it is no joke for governments globally as they brace for his tariff announcements.
It is stunning how little we know about the plans to be announced in the Rose Garden of the White House later today.
It was telling that we didn’t see the President at all on Tuesday. He and all his advisers were huddled in the West Wing, away from the cameras, finalising the tariff plans.
Follow the events of Liberation Day live as they unfold
Three key figures are central to it all.
Treasury Secretary Scott Bessent is the so-called ‘measured voice’. A former hedge fund manager, he has argued for targeted not blanket tariffs.
Peter Navarro is Trump’s senior counsellor for trade and manufacturing. A long-time aide and confidante of the president, he is a true loyalist and a firm believer in the merits of tariffs.
His economic views are well beyond mainstream economic thought – precisely why he appeals to Trump.
The third key character is Howard Lutnick, the commerce secretary and the biggest proponent of the full-throttle liberation day tariff juggernaut.
The businessman, philanthropist, Trump fundraiser and billionaire (net worth ranging between $1bn and $2bn) has been among the closest to Trump over the past 73 days of this presidency – frequently in and out of the West Wing.
If anything goes wrong, observers here in Washington suspect Trump will make Lutnick the fall guy.
What are Donald Trump’s tariffs, what is ‘liberation day’ and how does it all affect the UK?
And what if it does all go wrong? What if Trump is actually the April fool?
“It’s going to work…” his press secretary said when asked if it could all be a disaster, driving up the cost of living for Americans and creating global economic chaos.
“The president has a brilliant team who have been studying these issues for decades and we are focussed on restoring the global age of America…” Karoline Leavitt said.
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‘Days of US being ripped off are over’
Dancing to the president’s tune
My sense is that we should see “liberation day” not as the moment it’s all over in terms of negotiations for countries globally as they try to carve out deals with the White House. Rather it should be seen as the start.
Trump, as always, wants to be seen as the one calling the shots, taking control, seizing the limelight. He wants the world to dance to his tune. Today is his moment.
But beyond today, alongside the inevitable tit-for-tat retaliation, expect to see efforts by nations to seek carve-outs and to throw bones to Trump; to identify areas where trade policies can be tweaked to placate the president.
Even small offerings which change little in a material sense could give Trump the chance to spin and present himself as the winning deal maker he craves to be.
One significant challenge for foreign governments and their diplomats in Washington has been engaging the president himself with proposals he might like.
Negotiations take place with a White House team who are themselves unsure where the president will ultimately land. It’s resulted in unsatisfactory speculative negotiations.
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Treasury minister: ‘We’ll do everything to secure a deal’
Too much faith placed in the ‘special relationship’?
The UK believes it’s in a better position than most other countries globally. It sits outside the EU giving it autonomy in its trade policy, its deficit with the US is small, and Trump loves Britain.
It’s true too that the UK government has managed to accelerate trade conversations with the White House on a tariff-free trade partnership. Trump’s threats have forced conversations that would normally sit in the long grass for months.
Yet, for now, the conversations have yielded nothing firm. That’s a worry for sure. Did Keir Starmer have too much faith in the ‘special relationship’?
Downing Street will have identified areas where they can tweak trade policy to placate Trump. Cars maybe? Currently US cars into the UK carry a 10% tariff. Digital services perhaps?
US food? Unlikely – there are non-tariff barriers on US food because the consensus seems to be that chlorinated chicken and the like isn’t something UK consumers want.
Easier access to UK financial services maybe? More visas for Americans?
For now though, everyone is waiting to see what Trump does before they either retaliate or relent and lower their own market barriers.
Business
What are Donald Trump’s tariffs, what is ‘liberation day’ and how does it all affect the UK?
If there is a word that has dominated Donald Trump’s second term, it’s tariffs.
Aluminium, steel, cars and champagne have all been in his firing line, while China, Canada and Mexico are the countries targeted with the heaviest costs.
Along the way, there have been threats, pauses and postponements.
So what are tariffs, what is in the pipeline – and what could all this mean for the UK?
What are tariffs and why is Trump threatening to use them?
Tariffs are taxes on goods imported into the US.
It is the importers buying the goods who pay the tariffs – therefore, American companies.
Ultimately, the intent is to protect US manufacturing and bolster jobs by making foreign-made products less attractive.
However, there is a knock-on effect: to compensate for tariffs, companies put up their prices, so customers end up paying more for goods.
Tariffs can also damage foreign countries as they make their products pricier and harder to sell.
In his second term, Mr Trump has frequently used them – or the threat of them – as a trade weapon.
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Trump’s tariffs: What can we expect?
They are a key part of Mr Trump’s efforts to reshape global trade relations, and he plans to impose a swathe of what he calls “reciprocal” taxes that would match tariffs levied by other nations.
Tariffs were also part of his playbook in his first term, when he imposed taxes on most goods coming from China and used them as a bargaining chip to force Canada and Mexico to renegotiate a North American trade pact.
On his first day back in office, the US president promised 25% tariffs on all products coming into the US from its nearest neighbours Mexico and Canada – ostensibly to force the countries to tackle illegal migration and fentanyl crossing the border.
What is liberation day?
Mr Trump has branded 2 April “liberation day”, when he could unveil the reciprocal tariffs on countries deemed to be giving the US a bad deal on trade.
The extent of potential tariffs and countries affected remains unclear, with Mr Trump at times sending mixed messages.
On 30 March, he said “all countries” could expect to be hit by tariffs.
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What is Trump’s ‘Liberation Day’?
Speaking from Air Force One, the US president rubbished a question from a reporter who asked whether it was true he was planning on targeting between 10 and 15 countries.
“Who told you 10-15 countries? You didn’t hear it from me,” he said.
When pressed on how many he was planning to hit, he said: “You’d start with all countries, let’s see what happens.”
Two days prior, he said he was open to carving out deals with countries seeking to avoid US tariffs, but that those agreements would be negotiated after 2 April.
He had previously said he “may give a lot of countries breaks, but it’s reciprocal”, adding: “We might be even nicer than that.”
How could the UK be affected?
The UK hopes an economic deal with the US will spare the country from some of the tariffs.
Sir Keir Starmer and Mr Trump have had “productive negotiations” towards a UK-US “economic prosperity deal”, Downing Street has said.
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‘Everything on table over US tariffs’
The two leaders discussed a possible deal in a phone call on Sunday and agreed negotiations will “continue at pace”, according to a statement released on Sunday 30 March.
The day before the so-called “liberation day”, Sir Keir told Sky News political editor Beth Rigby the UK was “working hard on an economic deal” with the US and said “rapid progress” has been made.
But, he admitted: “Look, the likelihood is there will be tariffs. Nobody welcomes that, nobody wants a trade war.
“But I have to act in the national interest and that means all options have to remain on the table.”
Sir Keir added: “We are discussing economic deals. We’re well advanced.
“These would normally take months or years, and in a matter of weeks, we’ve got well advanced in those discussions, so I think that a calm approach, a collected approach, not a knee-jerk approach, is what’s needed in the best interests of our country.”
Mr Trump has not explicitly said the UK is in his sights for further tariffs, though he has described VAT – a tax added on all goods and services in the UK – as unfair.
In deciding what is a reciprocal tariff for the UK, it’s possible Mr Trump could use the tax, typically 20%, to decide.
Data shows no great trade imbalances – the gap between what you import and export from a certain country – and UK figures show no trade deficit with the United States.
UK ministers have previously suggested this could be good news for avoiding new levies.
But the tariffs Mr Trump has already announced would have a big impact on the UK – particularly the car tariff.
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Business secretary hopes Trump tariffs will be ‘reversed in weeks or months’
Jonathan Reynolds, the business and trade secretary, told Sky News he is “hopeful” the tariffs can be reversed soon.
He warned: “The longer we don’t have a potential resolution, the more we will have to consider our own position in relation to [tariffs], precluding retaliatory tariffs.”
He added the government was taking a “calm-headed” approach in the hope a deal can be agreed, but said it is only “reasonable” that retaliatory tariffs are an option, echoing Sir Keir’s sentiments over the weekend.
What tariffs have already been announced?
Some tariffs have already come into effect, while Mr Trump has confirmed some that will come in on 2 April.
He has said a 25% tariff on all cars imported to the US will come into effect, with a similar tariff on car parts expected to follow in May.
This could prove even more complicated for American car makers, who source components from around the world even if the vehicle is made in the US.
But Mr Trump has insisted the move will “continue to spur growth”, pointing to plans from Hyundai – the South Korean car maker – to build a $5.8bn (£4.5bn) steel plant in Louisiana.
The tariff could have a huge impact on the UK’s car industry, including on manufacturers such as Jaguar Land Rover, Aston Martin and Rolls-Royce.
Official data shows the US is the UK car sector’s largest single market by country, accounting for £6.4bn worth of car exports in 2023 – 18.4% of the total.
Trump has also said he will place a 25% tariff on all imports from any country that buys oil or gas from Venezuela, which includes the US itself – in addition to imposing new tariffs on the South American country.
On 12 March, a 25% tariff on all steel and aluminium imports to the US came into effect, affecting UK products worth hundreds of millions of pounds.
The move came after he placed a 10% tax on all imports from China, which he later doubled to 20%.
He placed 25% tariffs on Mexico and Canada, but paused them for a month two days after they came into effect, meaning they are set to resume on 2 April.
The pause did not fully cover a tariff of 10% on Canadian energy products.
What has been the global response to tariffs?
There has widely been condemnation of the tariffs, especially from countries worst affected like Mexico and Canada.
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Canadian PM: ‘Tariffs are an attack’
Some have imposed, or threatened to impose, retaliatory tariffs.
China has already hit back with retaliatory tariffs covering a range of US goods, including a 15% tariff on coal and liquefied natural gas products, a 10% tariff on US crude oil and tariffs of up to 15% on key US farm exports.
Canada imposed tariffs of its own on US products, including a 25% reciprocal tariff on US steel and aluminium products and tariffs worth an estimated C$29.8bn (£16bn) on a wide range of US products including orange juice, peanut butter, alcohol, coffee and clothing.
Read more on tariffs:
It may be harder for the UK to trump metals tariffs
Stock markets tumble as Trump tariffs loom
The European Union has said it will impose retaliatory tariffs on the US, but when they will come into force is unknown.
The European Commission initially threatened to impose “countermeasures” affecting €26bn (£21.9bn) of US goods from 1 April, but later delayed this until the middle of April.
The bloc said the delay was because it wanted “additional time for discussions” with the US after Mr Trump threatened a 200% tariff on EU alcohol – including wine and champagne – if the bloc imposed duties on US whiskey.
Any tariffs imposed by the bloc would not only impact US steel and aluminium products, but also textiles, home appliances, agricultural goods and whiskey.
Why tariffs could cost you – even if Trump spares UK
Even if no tariffs are put on all UK exports to the US, consumers globally will still be impacted by the wider trade war, particularly in the US.
Economists believe that tariffs will raise costs in the US, sparking a wave of inflation that will keep interest rates higher for longer. The US central bank, the Federal Reserve, is mandated to act to bring inflation down.
More expensive borrowing and costlier goods and services could bring about an economic downturn in the US and have knock-on effects in the UK.
Forecasts from the National Institute of Economic and Social Research (NIESR) predict lower UK economic growth due to higher global interest rates.
It estimated that UK GDP (a measure of everything produced in the economy) could be between 2.5% and 3% lower over five years and 0.7% lower this year.
The Centre for Inclusive Trade Policy thinktank said a 20% across-the-board tariff, impacting the UK, could lead to a £22bn reduction in the UK’s US exports, with the hardest-hit sectors including fishing and mining.
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