The government has agreed to a request by MPs to allow alternative finance methods, which could include public borrowing, to be assessed by civil servants as part of the development of infrastructure projects – even if those methods are contrary to current policy.
In a report published last November, the Public Accounts Committee called on civil servants at the Department for Business Energy and Industrial Strategy, and at the Treasury, to “show decision makers the cost and risk implications of different possible financing structures when appraising large infrastructure projects, including its further nuclear deals, even if they are outside the prevailing policy”.
The recommendation, which the Treasury's official response has now formally accepted, came after MPs concluded both the Treasury and BEIS did not sufficiently appraise alternative ways to finance the construction of the Hinkley Point C nuclear power station in Somerset.
Under the controversial funding mechanism for the scheme, the government agreed a strike price with developer EDF Energy that guaranteed the firm a fixed price for energy from the plant (set at £92.50/MWh in 2013 prices) until 2030 in return for the French state-owned energy giant funding the construction.
The committee said that this had locked consumers “into an expensive deal lasting 35 years", as any difference between the strike price and the retail price for energy over the period would be met through higher bills. MPs highlighted that alternative financing models, involving paying for some of the project upfront, could have significantly reduced the total estimated £20bn project cost, but these options were not considered because both the department and the Treasury were adhering to a clear policy position that the private sector should finance the deal and there should be no public subsidy for new nuclear.
In its response, published late last month, the Treasury agreed to the recommendations for greater consideration of options – although it only stated that this would apply to new nuclear projects.
“As part of their appraisal of large infrastructure projects the department and the Treasury will assess the cost and risk implications of a range of possible financing structures,” it stated. “Ministers will be sighted on such a range of options, including possible financing structures outside of the prevailing policy, when deciding whether and how to proceed with future new nuclear projects.”