The Department for Energy Security and Net Zero’s delivery model for Sizewell C places more risks on taxpayers and consumers than other electricity projects, but will reduce finance costs and deliver the project on time
According to a new report from the National Audit Office, the Sizewell C delivery model has significant costs and relies on big assumptions.
Gareth Davies, head of the NAO, said: “Sizewell C forms a significant part of the government’s plan for a secure and affordable clean energy supply.
“There has been a concerted attempt to learn from the problems of previous nuclear power construction projects and other large infrastructure schemes. This has resulted in a novel financing structure, and DESNZ will need to monitor the risks closely.”
Sizewell C will power millions of homes, but at what cost?
With a baseline cost estimate of £38.2bn, Sizewell C is set to be completed by 2039 and power the equivalent of 6 million UK homes for 60 years.
Once construction is completed, DESNZ’s delivery model for Sizewell C predicts that the net benefit could be up to £18bn, primarily through reduced costs compared to other ways of reaching net zero.
However, DESNZ’s modelling of these benefits shows the costs will not level out until after 2060. They are also subject to significant uncertainty, as other forms of net-zero technology could prove cheaper or more effective.
Private investment needed to keep construction costs down, DESNZ argues
Under this innovative approach, the government has provided most of the finance, but DESNZ owns a minority share of the company delivering the project. This intentionally limits its control over the project.
DESNZ argues that if the project were fully under public control, the construction costs of Sizewell C would rise to the ‘higher regulatory threshold’ set out in the economic licence of £47.7bn, and that the involvement of private investors is justified, as their expertise will reduce construction costs and speed up delivery.
The financial returns to investors will cost consumers between £4.0bn and £4.5bn unless they also help to cut costs and decrease delivery time by a commensurate amount.
It is not clear how strongly the deal incentivises investors in Sizewell C to reduce construction costs. Investors told NAO they were strongly motivated to keep construction costs below the higher regulatory thresholds.
However, if construction costs rise just below this amount, investors still earn returns comparable to those of other utilities.
Monitoring the delivery model of Sizewell C over time
Sir Geoffrey Clifton-Brown, chair of the Committee of Public Accounts, stated: “While the potential benefits of the Sizewell C delivery model are considerable, they remain uncertain; by contrast, the risks are immediate, substantial and borne by the public.
“Experience from comparable nuclear projects in the UK and overseas highlights their vulnerability to delays and cost overruns. Although the government has introduced a new delivery and financing model to mitigate these risks, it must now ensure it works in practice through close monitoring.”
The post DESNZ will need to monitor risks of Sizewell C delivery model closely, NAO warns appeared first on Planning, Building & Construction Today.
