Comparisons with an earlier nuclear station, planned for the same site nearly 30 years ago, show that while the cost of wind energy has declined in real terms over the period, the cost of nuclear energy has increased.
The project is very controversial, partly because of the high strike price, which most commentators agree is generous, and partly because there is no operational example of the chosen design operating anywhere in the world.
Two projects under construction in other countries are running late and are well over budget. Commenting on the Hinkley project, the European Commission observed:
"The commission understands that the EPR technology power plants in Flamanville (France) and Olkiluoto (Finland) have been undertaken without any support. The commission cannot at this stage explain why the Hinkley Point C project should be fundamentally different from the two EPR plants currently being constructed."
After initial doubts, the commission concluded that state aid was involved in the UK project, but it was allowable.
The projected cost of the nuclear station is £18 billion (£5,625/kW) and it will receive £92.5/MWh for 35 years in 2012 prices. This price is index-linked, and corresponds to around £97/MWh in 2016 prices.
By the time the plant is built — around 2025 — the price is likely to be well above £100/MWh.
The European Commission noted: "Based on current assumptions, this would translate into a nominal strike price of £279/MWh in 2058, the last year of application of the contract for difference scheme."
The Department for Business, Energy and Industrial Strategy (DBEIS) — now responsible for energy in the UK — has issued a "value for money" briefing arguing that the electricity price is "within the range of costs of alternative large-scale low-carbon generation technologies in the 2020s" (see chart, below).
It says that the nuclear price is at the bottom of the comparable cost range for first of a kind commercial carbon capture and storage (CCS) and at the bottom of the range for offshore wind (£81-132/MWh).
It suggests that it is towards the top of the cost range for combined cycle gas turbines (CCGT) (£47-96/MWh).
It accepts that it is above the comparable cost range of large-scale photovoltaics and onshore wind (£40-90/MWh).
It then goes on to argue that solar and wind would require "significant upgrades to the grid ... as well as increased costs to keep the system in balance".
However, grid upgrades for Hinkley Point will cost around £74 million and plans have recently been announced for a £2.8 billion grid connection needed for another nuclear-power station.
Moreover, additional balancing costs will be incurred for Hinkley Point.
UK grid operator National Grid suggested in 2007 that these were likely to be in the region of £50-£80 million per year. These costs arise as the generating units will become the largest on the electricity network, which needs to be able to withstand the sudden loss of one or more units should this ever occur.
The extra cost to the electricity consumer depends on future wholesale prices. The DBEIS suggests £11-21 billion, but the National Audit Office has suggested these may be as much as £29 billion, based on current prices.
Hinkley Point C is the second nuclear-power station on the site to receive construction consent. The first, approved around 1990, did not proceed due to the privatisation of the UK electricity industry.
At the time, wind was a nascent technology, but was used as a comparator. A comparison of 1987 and 2016 costs, shown in the table (below), reveals that the capital cost of wind (in money of the day) has increased by about 40%, but the cost of nuclear has increased by a factor of more than four.
In 1987, with a 5% interest rate, the cost of wind energy was 25% higher than the cost of nuclear, whereas in 2016, with a 10% interest rate, it is nearly 30% less.
The 5% interest rate was appropriate in 1987, for a nationalised industry. The UK treasury raised the rate to 8% in 1989, in advance of privatisation.
The projected rate of return for the current nuclear project is around 10%, reflecting the risks associated with it. For onshore wind the relevant rate is around 8%.
By way of a postscript, it may be noted that the Finnish Company Fennovoima signed a contract with a subsidiary of Russian state nuclear corporation Rosatom for a 1.2GW nuclear power station in 2013. It will be paid "no more than €50/MWh" — about half the UK price.
The capital cost — around €5,000/kW — is only slightly less than the UK price, so this suggests that the finance is available at lower cost.
At a glance – This month's report conclusions
Hinkley Point C Value for Money, UK Department of Business, Energy and Industrial Strategy, 2016 Comparison of nuclear electricity costs with those of other 2020s generation technologies finds that onshore wind is next to lowest (after gas).
Hinkley Point C Power Station Public Inquiry. Statement of Case. Central Electricity Generating Board, 1988. Wind was 27% more expensive than nuclear at the time.