Osborne agrees to China investing in UK nuclear plants

The Chancellor, George Osborne, has announced that the UK will allow Chinese companies to take a stake in British nuclear power plants.

The announcement also said that Chinese firms might eventually be allowed to take majority stakes in British nuclear plants.

Mr Osborne made the announcement on the last day of a trade visit to China.

The first China deal could be as early as next week, with the go ahead for a new £14bn plant at the Hinkley C site.

Also on Thursday, a report commissioned for the prime minister warned of a growing risk of power shortages over the next few years.

The Royal Academy of Engineering said the closure of older power plants and the slow progress in building news ones was likely to stretch the system "close to its limits".

Supply is expected to come under strain in the winter of 2014-15.

Most existing coal-fired plants are expected to be closed in 2015 to meet European Union pollution directives, while many gas-fired power plants are not being used at the moment because gas is so expensive.

These would take time and money to bring back on stream.

The Hinkley C project, in Somerset, will be the first new nuclear power station since 1995.

Hinkley C's construction will be led by the French state-controlled giant, EDF, which has been looking for a partner or partners to share the costs.

EDF has been negotiating with three Chinese nuclear giants on the Hinkley C project - CGN, CNNC and SNPTC - all of which have been seen by the chancellor this week.

Our business editor, Robert Peston, says he has been told that one or two of these will end up owning perhaps 30% of Hinkley C.

A DECC spokesperson said talks about a contract were underway: "Negotiations remain ongoing between the government and EDF on the potential terms of an investment contract for Hinkley Point C. No agreement has as yet been reached.

"A contract will only be offered if it is value for money, fair and affordable, in line with government policy on no public subsidy for new nuclear and consistent with state-aid rules."

Mr Osborne made the announcement while on a visit to the Taishan nuclear plant in southern China on Thursday which is itself a collaboration between EDF and the China General Nuclear Power Group (CGNPG).

He said: "Today is another demonstration of the next big step in the relationship between Britain and China, the world's oldest civil nuclear power and the world's fastest growing civil nuclear power."

The memorandum of understanding also includes roles for British companies in China's nuclear programme.

China has 17 nuclear reactors in operation, which provide about 1% of its electricity production capacity.

In the future, Chinese firms might be allowed more than just minority stakes in UK plants. The government said that "over time, stakes in subsequent new power stations could be majority stakes".

At the weekend, the Energy Minister, Ed Davey, said he believed that a "massive" wave of investment from China, Japan and Korea would secure UK's power supply into the future.

Securing future energy supplies is a major challenge.

A portion of energy bills is being diverted to alternative energy investment in wind farms and solar energy.

But the government believes that renewable energy sources cannot provide enough power for the country's energy needs.

The industry regulator, Ofgem, has also warned of the "unprecedented challenge" to secure power supplies.

It said spare electricity power production capacity could fall to 2% by 2015, increasing the risk of blackouts.