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Nuclear deal given go-ahead

A deal to build Britain's first new nuclear plant in a generation has been announced. The government has been in negotiations with EDF Energy over the Hinkley Point C project in Somerset for more than a year.

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Why do we have to agree an energy price beforehand?

Nuclear industry expert Dave Gardner explained to ITV News why it was necessary to set a "strike price" in advance of a nuclear deal being agreed:

Fixing a strike price is the only way that nuclear investment can work now.

As there are so many subsidies for renewables, and supply companies with their own generation, there is no reliable central clearing price in the wholesale market.

So the agreed electricity market reforms (EMR) establish the principle of contracts for difference (CFDs) that guarantee a strike price.

Then whatever and however the underlying wholesale market develops over the next 35 years, the nuclear plant will either be topped up to that level if the market price is lower or will pay back into the market the excess if the price is higher on an hour by hour basis.

Given the 10-year construction period before any nuclear station starts to generate and earn any revenue, followed by a 20 years payback period, it would otherwise require an heroic assumption about the prices and stability and politics of the market before investing.

This agreement between the Government and EDF is the first example of these electricity market reforms.

– Dave Gardner

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