Is it Brexit for Hinkley Point C?

This blog was written for Nuclear Engineering International in early July. I thought delays would come from the French side …

 

The UK has voted to leave the European Union. Where does that leave the country’s flagship nuclear new-build project, Hinkley Point C?

Recent reports in the UK have suggested the vote could make an uncertain plant still more uncertain. I have heard people say the vote means it will never be built. The new Conservative leader, Teresa May, has previously argued against giving ‘unreasonable subsidies’ to Hinkley Point C,  but political views can change: after all, the deal was developed, and signed, by two LibDem MPs whose party had been implacably opposed to nuclear for years.

Financially there are clearly major uncertainties. Even before the Brexit effect the headline issue is that EDF, with a market capitalization of £22 billion, was faced with building a plant that will cost £32 billion. The result of the vote adds uncertainty and that could well rattle the plant’s potential Chinese investors.

The fall in the value of Sterling , for example, makes components and services from France and China more expensive, and means the owners will repatriate less revenue. That is very important for a capital-heavy nuclear project.

Some suggestions I have heard make it sound rather as though the EU and its Member States were begging the UK to build a reactor.  That is not the case, and although the UK won State Aid approval it was against the wishes of several Member States and not without a full investigation.

Will the UK still have to meet EU State Aid rules? It is quite likely; there are several routes to signing trade deals with the EU post-Brexit and most require something very similar to the existing State Aid test to be in place. But there may be good news for the project on other pending legal cases – Austria’s challenge, for example, may fall away.

Suggestions that France is more inclined to underwrite construction of a plant for “its EU neighbour” and would lose interest if the UK was outside the EU are surely nonsense.

So where are we going? The plant’s cost to the consumer has gone up, because the ‘Contract for Difference” support tops up the power price to a fixed ‘strike price’ – and the power price that has to be topped up is falling.

Will the UK or France cancel the project, as some argue? Both may well wish they had never started it, but that’s very far from being the same thing. The UK’s financial watchdog, the National Audit Office, said it was being continued for strategy, not financial, reasons. That’s clearly the case. And outside the economics of the plant, each does have reasons to keep the project alive in the teeth of opposition.

 

Decarbonisation and stable policy

The UK talks up its belief in a local decentralised energy system. But System Operator National Grid’s annual look at options towards 2050 (Future Energy Scenarios) is a useful insight on policy thinking, and it anticipates that most electricity supply will come from three sources: renewables, gas with carbon capture and storage – and nuclear. And that electricity requirement will be larger than it is now, because the greenest options assume that a large proportion of  transport and heat requirements will be electricity in future.

For the UK government, far more than for green lobby groups, decarbonisation means nuclear as much as it means renewables. That is particularly true of this Conservative government, which could see it as a way to free itself of the Renewable Energy Directive while maintaining a low carbon trajectory.

The UK government wants new nuclear. It also wants – especially now – to look like a government that sees past the short term and. crucially, does not go back on a longstanding deal. All parts of the industry have been preaching the message on stability and consistency for years, and it is more likely the government will hear that message for a technology it likes (nuclear) than one it dislikes (onshore wind). Although some advisors to the new government – and even new Prime Minster Theresa May – have questioned the cost of the deal in the past, the initial message from new Chancellor of the Exchequer gave support to the deal.

 

Jobs and industry

As for France, it too has reasons to keep the deal alive. In fact, at least 40,000 reasons – the number of employees at Areva. True, not all are involved in new reactor build, but on the other hand many other French industries provide components and services in Areva’s domestic supply chain. France has an industrial policy in a way that the UK doesn’t.

If you want a demonstration that France is willing to go a long way to retain those jobs and industries look at recent history: it has been willing to come close to sacrificing its global utility (EDF) to force it to take on Areva and its debt.

If Areva is to retain a global nuclear business – if it is even to have a managed decline over several decades – it has to have a successful project. Even though many would argue that the chance of a successful (ie smooth) construction phase at Hinkley is less than zero, the project keeps French industry alive.

As for China, some of the same arguments apply. Hinkley Point C is still a route for Chinese technology into the UK and European markets, even if those are now separate, and an important global reference.

What’s the conclusion?  It’s hard to see an easy way out. Negotiations over the exact form of Brexit do provide an opportunity for some face-saving deal renegotiations  between France and the UK, that produce positive lines on both sides -  like more profit clawback for the UK.

My call is: more delay, more talks, and a “new deal” that gets headlines but doesn’t look that different from the old one.

And if EDF’s project were to be cancelled? On one hand it would shake potential investment in new nuclear elsewhere in the country (there are projects planned at Wylfa in Wales and Moorside in Cumbria). One the other hand, Hinkley Point is a prime consented nuclear site with more than a billion invested in civil preparation. It would allow Westinghouse or Hitachi, who are behind the two other projects, to turn a single UK nuclear project into a series. I’d like to see a bidding war.

 

1 comment for “Is it Brexit for Hinkley Point C?

  1. Quilombola
    August 1, 2016 at 8:13 AM

    Yes, thank-you!

    The other two consortia will be finalizing their design approval process within a couple years at most and despite this they are programmed to be completed within the same time horizon as HPC is.

    We therefore have the opportunity to have a competitive process without increase the risk to our security of supply and decarbonisation agendas.

    Proceeding the HPC no longer makes not rational economic, security or decarbonisation sense.

    Finally, a project that has a 10yr construction timeline, 35yr fixed contracts and +50yr life span requires very strong support not just politically but also publicly and most importantly… within the company delivering the project!

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