Ministers have been urged by Citizens Advice to protect consumers from a hike in household energy bills to pay for the proposed Sizewell C power station, amid international tensions over the rising costs of nuclear projects.
The UK’s largest independent advice provider has raised concerns that the project in Suffolk may offer “poor value for money” and called for greater clarity on its funding, in a letter to the Department for Energy Security and Net Zero.
Estimates of the cost of Sizewell C vary wildy – from £20bn to £44bn – and a process to find international investors to join the UK government and France’s EDF is ongoing.
Last month, the owner of Sizewell C’s sister project, EDF’s Hinkley Point C in Somerset, said it would be delayed to 2031 and cost up to £35bn, blaming inflation, Covid and Brexit. This could reach £47.9bn under its worst-case scenario. On Friday, EDF said it had taken a €12.9bn hit on the project.
EDF, which is wholly owned by the French government, is on the hook for cost overruns at Hinkley. French officials have lobbied the UK government to share the burden of the extra costs after its Chinese partner, CGN, was removed from the Sizewell C project over security fears.
However, Sizewell C has a different funding structure to Hinkley, exposing households to potential overruns.
Sizewell C Ltd, the entity behind the project, updated its electricity licence to allow a Regulated Asset Base (RAB) model to be implemented.
RAB financing models, which have been used in the construction of the Thames Tideway Tunnel and Heathrow Terminal 5, are designed to encourage investment by offering a guaranteed income for investors during the construction phase of a large project and bring down financing costs, with the cost added to bills.
In a response to the consultation on the licence update, Citizens Advice chief energy economist Richard Hall said: “By providing investors with a relatively guaranteed income stream, and one that commences during the construction phase, it can be convincingly argued that applying the RAB model to new nuclear projects could reduce the cost of capital that consumers have to pay.
“Our concern has been, and remains, that consumers are not simply exposed to the cost of capital, but also the volume of capital that needs to be employed. If the volume of capital required balloons, the project may offer consumers poor value for money even if it is cheaply financed.”
He added: “Looking at new nuclear projects in general, and the type envisaged at Sizewell C in particular, the scope for material cost and time overruns is very significant. Consumers need to be protected from those risks. They have no way to manage them, and are reliant on the [energy] department to take steps to ensure that they are not on the hook for cost or time overruns.”
Hall also raised concerns over proposals for advertising and publicity costs included in the licence consultation. “Billpayers should not be paying for the Sizewell C sales pitch,” he said.
The latest estimates of the cost of Sizewell C, conducted by University of Greenwich Business School and seen by the Guardian, forecast that it would cost £38.4bn and be complete in 2039. Its analysis suggests that the consumer surcharge to fund it would rise from £4.07 a year in the first year of the project, to £27.82 in year 15, costing households an extra £239.21 in total during its construction.
Alison Downes of the Stop Sizewell C campaign said: “The government emphasise that Hinkley Point C is EDF’s risk and responsibility, but when Sizewell C overspends and overruns – as it inevitably will – future ministers will have to explain why it was considered acceptable to put its construction risk on to consumers and taxpayers. Why has the Hinkley fiasco not taught the government that a RAB-funded Sizewell is a bad idea?”
The government has so far spent more than £1bn on the Sizewell C project, which is expected to create 70,000 jobs, and ultimately power 6m homes.
Last year, the Observer revealed that the British Gas owner Centrica – a minority investor in Britain’s nuclear power stations – was interested. Its boss, Chris O’Shea, last week confirmed it remains interested.
A Department for Energy Security and Net Zero spokesperson said: “Projects like Sizewell C will mean cleaner, cheaper and more secure energy in the long-term.
“We anticipate charges for large-scale nuclear projects to be around just £1 a month on an average household bill.
“Our model can deliver greater value for money for consumers by lowering the cost of financing construction, one of the biggest drivers of new nuclear project costs.”
