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Sizewell C: Accounting officer assessment 2022 (HTML)

Updated 12 June 2023

Department for which the accounting officer who made the assessment is responsible:

Department for Business, Energy and Industrial Strategy

Project title: Sizewell C

Introduction

It is normal practice for Accounting Officers to scrutinise significant policy proposals or plans to start or vary major projects, and then assess whether they measure up to the standards set out in Managing Public Money. From April 2017, the government has committed to make a summary of the key points from these assessments available to Parliament when an Accounting Officer has agreed an assessment of projects within the government’s Major Projects Portfolio.

This Accounting Officer Assessment was made for the Sizewell C Project, following its Outline Business Case stage. I have made the assessment as the Accounting Officer for the Department for Business, Energy and Industrial Strategy.

Background and context

The Sizewell C (SZC) nuclear power plant aims to provide a firm and low-carbon source of 3.2 GW of electricity, delivered in a way which represents value for money for consumers and taxpayers. SZC is the most advanced new nuclear project in the UK and is the only project capable of delivering the Energy White Paper’s objective for at least one large scale nuclear project to reach the point of a Final Investment Decision (FID) this Parliament, subject to Value for Money and all relevant approvals. SZC will be a near-replica of Hinkley Point C currently under construction.

Modelling to support the Energy White Paper suggests that overall demand for power could double out to 2050. This would require a four-fold increase in clean electricity generation with the decarbonisation of electricity increasingly underpinning the delivery of our net zero target. If approved, SZC would provide around 7% of the UK’s current electricity needs and save 9 million tonnes of CO2 a year during operation. As such it would make an important contribution to UK Net Zero ambitions and critically domestic energy security.

Regularity

A key aspect of the regularity test is whether the proposal is affordable. The project’s cost profile within the spending review period has been subject to significant discussion between HMT and BEIS. Although factors remain which could increase this profile, there are also other factors which may drive down costs.

BEIS, in conjunction with HMT, has carefully considered the affordability of the project in the current Spending Review period, and judged that it is affordable. Future spending reviews are anticipated to provide the necessary funding for the later stages in the project.

A decision on a Final Investment Decision (FID) and the quantum of investment required to take FID would be approved through a Final Business Case.

Funding for the proposal can be made through the power in section 50 of the United Kingdom Internal Market Act 2020.

Overall assessment: My assessment is that the regularity test is satisfied.

Propriety

BEIS commenced negotiations with shareholders of the SZC Project in December 2020, in line with a commitment in the Government’s Energy White Paper to bring at least one large scale nuclear project to the point of FID in this Parliament, subject to value for money and all relevant approvals. This commitment was restated in the British Energy Security Strategy in April 2022.

The SZC project has been approved at both Strategic Outline Business Case and Outline Business Case stage by the BEIS Projects and Investment Committee. The project received approval from the Government’s Major Projects review Group on 15 July 2022.

Overall assessment: My assessment is that the propriety test is satisfied.

Value for money

The value for money appraisal follows HMT Green Book guidance, taking account of both monetised and non-monetised costs and benefits of the SZC project. The assessment considers the value for money of the project from the point of view of consumers, taxpayers and society as a whole.

Large-scale nuclear plants have characteristics that lead to markets underinvesting in them, relative to their value to society, without some form of government support. Nuclear power provides a secure and low-carbon supply of electricity that markets typically undervalue, as the societal benefit of reliable power supply or societal cost of emissions are not fully realised by firms generating power. It involves high upfront capital costs with uncertain returns, acting as a barrier to projects financed by the private sector alone.

The value for money assessment is informed by BEIS’ power market model of Great Britain (the Dynamic Dispatch Model). In scenarios where SZC is built it estimates how far this could reduce the costs of the electricity system, compared to counterfactuals where alternative low carbon technologies (that are also consistent with net zero) are deployed. An estimate of optimism bias has been applied to the project cost and duration, using a Reference Class Forecasting methodology, with data on more than 100 nuclear plants and thousands of non-nuclear construction projects.

The assessment considers important non-monetised benefits the project could provide, such as improving the security of supply, enhancing the nuclear supply chain (increasing delivery confidence in further nuclear projects as outlined in the British Energy Security Strategy), supporting jobs and the potential use cases from extracting excess heat. It also accounts for potential non-monetised costs, including wider environmental impacts and a faster rate of innovation or cost reduction in alternative technologies supplying low carbon power.

The modelling suggests building SZC will reduce the cost of the electricity system in Net Present Value terms, set against a system without SZC. The assessment concludes that building SZC is likely to reduce costs to consumers and generate a return on government investment, compared to the counterfactuals. The only scenario where this is not the case is for a high cost of capital and low demand for electricity.

The recommended option is to continue with the development of SZC, with government taking an equity stake in the project’s development phase to ensure it continues to mature ahead of FID.

The analysis depends on the final capital structure to be agreed as part of the capital raise process. As the project progresses, the assumptions will be updated as appropriate and the appraisal will develop, to ensure that SZC remains economically viable and represents value for money.

BEIS has published information on the government’s value for money assessment of the project, as part of the project’s designation statement in November 2022. This also included detail on the project’s Net Present Value across a range of scenarios for the cost of capital and demand for electricity.

Overall assessment: My assessment is that the value for money test is satisfied.

Feasibility

All major projects are subject to risks and SZC is no different - however, extensive mitigations are in place and actively monitored and managed. The project has a robust risk (and opportunities) management framework in place, alongside a maturing benefits realisation strategy and plan.

The project features on the Government’s Major Project Portfolio and is subject to regular Infrastructure and Projects Authority assurance reviews and scrutiny. The project also has the necessary structures, project controls and cross disciplinary teams in place to successfully deliver the project.

A comprehensive appraisal of Lessons Learned on previous comparable projects has been conducted by the SZC Project. This appraisal has predominantly focused on Hinkley Point C and Flamanville 3, both reference plants for SZC, and the Wylfa Newydd Project. The project team have also considered the implementation of a Regulated Asset Base model for the Thames Tideway project and the issues implementing a Regulated Asset Base model seen in US nuclear projects, most prominently Virgil C Summer in South Carolina and Vogtle in Georgia. This appraisal was informed by internal Lessons Learned reports, as well as relevant reports from the National Audit Office and Public Accounts Committee. Finally, the project team also considered the findings and recommendations made by the Climate Change Committee (CCC) and the project’s technical advisors.

Overall assessment: My assessment is that the feasibility test is satisfied.

Conclusion

As the BEIS Accounting Officer I have considered the assessment of the SZC project and approved it on 22 November 2022.

I have prepared this summary to set out the key points which informed my decision. If any of these factors change materially during the lifetime of this project, I undertake to prepare a revised summary, setting out my assessment of them.

The summary included in this letter will be published on the government’s website (GOV.UK). Copies of this letter will be deposited in the Libraries of the House and sent to the Comptroller and Auditor General and Treasury Officer of Accounts.

Sarah Munby
Permanent Secretary, BEIS
22 November 2022