National Grid PLC has agreed to reduce the cost of connecting the new Hinkley Point C nuclear power station located in Somerset, England, to the electricity grid by GBP60 million, the UK energy regulator said Friday, saving consumers "money on their bills".

The Office of Gas & Electricity Markets said the Hinkley-Seabank project - which connects the nuclear power station to the electricity grid - will now cost GBP656 million compared with the original GBP716 million estimate provided by National Grid Electricity Transmission, a part of FTSE 100-listed utility National Grid.

In October 2019, Ofgem had deemed National Grid Electricity Transmission's costs for the Hinkley-Seabank project to be too high and had proposed to cut the costs of the project by GBP80 million.

However, following consultation and analysis of new evidence, Ofgem on Friday said it has agreed with a GBP60 million cost reduction for the project as some of the costs are appropriate and provide value for money. This includes GBP11.3 million of development costs in relation to the project's T-pylons; GBP5.8 million of additional costs in relation to project contingency; and GBP1.6 million of additional costs in relation to project management.

Ofgem intends to fund the Hinkley-Seabank project through RIIO2 - the next network price control which takes effect from March 2021 to 2026 for electricity transmission. Previously, the regulator had planned to use the new 'Competition Proxy' funding model, which would have tried to replicate the effects of competition by setting a lower rate of return and locking it in for the life of the asset.

"When compared to RIIO-1, the updated RIIO-2 framework is projected to save billions of pounds for consumers over its five year period," Ofgem explained.

Shares in National Grid were down 2.9% at 882.87 pence each in London on Friday morning.

By Tapan Panchal; tapanpanchal@alliancenews.com

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