Britain will consider taking a direct stake in a £16bn nuclear power plant planned in Wales in a dramatic reversal of decades-long government policy not to commit public funds to the construction of new reactors.
Greg Clark, the business secretary, told MPs on Monday the government would now start “commercially sensitive” negotiations with Japan’s Hitachi to develop the Wylfa Newydd plant planned at Anglesey but stressed that no final decision had yet been made. The government’s longer-term objective, however, remained for new reactors to be financed by the private sector, Mr Clark said.
“For this project the government will be considering direct investment alongside Hitachi and Japanese government agencies,” he said.
“This is an important next step for the project, although no decision has been taken yet to proceed . . . and successful conclusion of these negotiations will be subject to full government, regulatory and other approvals, including but not limited to value for money, due diligence and other state aid requirements.”
“It remains the government’s objective in the longer term that new nuclear projects, like other energy infrastructure, should be financed by the private sector,” he said.
The government will also review the viability of a regulated asset base model “as a sustainable funding model based on private finance for future projects beyond Wylfa”.
Alun Cairns, secretary of state for Wales, welcomed the news, describing it as “the biggest infrastructure project in Wales for a generation”.
Hitachi also welcomed progress in discussions with the UK government, saying it “will make its final investment decision for Horizon Project after applying project assessment in terms of economic rationality as a private company”.
The decision to commit taxpayer funds comes after criticism over the government’s handling of a deal to back the construction of a £20bn plant at Hinkley Point C in Somerset being built by France’s EDF. Under the terms of that deal the UK guaranteed to pay EDF a minimum price for the electricity of £92.50 per megawatt hour (MWh).
A report by the public accounts committee last year urged the government to rethink the economic case for new reactors after making “grave strategic errors” in the Hinkley project. The report said consumers had been “dealt a bad hand” by the government’s agreement to lock UK households into buying expensive electricity from Hinkley for 35 years. Mr Clark made reference to the report’s conclusions in his statement.
Ministers have until now opposed the idea of taking a direct stake in new nuclear projects to avoid exposing taxpayers to potential steep costs in the case of budget overruns.
The investment will, however, enable the project to draw on the government’s access to cheap debt. It should also enable the government to negotiate a lower price for the electricity paid through subsidies on household energy bills. People close to the negotiations have said the government is targeting a minimum price of around £77.50 per MWh, £15 below the “strike price” agreed for Hinkley.
However, even at the estimated £77.50 per MWh, the price will still be higher than the £57.50 per MWh price agreed for offshore wind projects in the government’s subsidy auction last year. Mr Clark did not comment on the possible level of the strike price for Wylfa on Monday.
Caroline Lucas, co-leader of the Green party, said: “Taking a stake in this nuclear monstrosity would see taxpayers locked into the project, and paying out for a form of electricity generation that’s not fit for the future.”
Kate Blagojevic, head of Energy at Greenpeace UK, said: “The notion that new nuclear will be good value for money is farcical when it’s so much more expensive than cleaner, safer renewable alternatives that are faster to build.”
Greenpeace said it was seeking clarification from the government on whether the deal complied with EU competition law.
Unite, the country’s largest union, described the news as “a step in the right direction”.
Full cost estimates for the development, which are projected at about £16bn, will not be completed until the end of the year. Hitachi, whose board remains divided on the project, is expected to make a final decision on whether to invest in construction of the plant next year. The first two units at Wylfa could generate about 2.9GW of electricity, enough to power about 5m homes, from the mid-2020s.