My Times column on Britain's delayed and every more expensive EPR nuclear power station
Last week the British and French governments announced that they remained confident that the Hinkley Point C nuclear power station in Somerset will be built. But EDF, the company that wishes to build it, declined again to say when a “final investment decision” will be made. That decision, originally intended for 2012, was then expected last October, when the Chinese president was in London — a third of the finance is coming from China. Then it was expected in November, then December, then at the February board meeting of the company, then last week. Still no sign of Godot.
It is time to pull the plug. EDF cannot afford to build it and we cannot afford to buy its premium-price electricity. At two other sites, in Finland and France, the European pressurised reactor (EPR) design is beset by technical problems, many years behind schedule and several times over budget. The Chinese are building two and have also encountered technical obstacles. Apart from Hinkley, the order book is empty, so ours would probably be the last EPR to be built.
The cost of building it has roughly trebled before a brick has been laid. At £18 billion, or more like £24 billion including finance costs, Hinkley Point C would be the most expensive power station ever built. The Three Gorges Dam on the Yangtze is its nearest rival and that generates ten times more electricity than Hinkley’s planned 3.2 gigawatts. If we spent that much on gas-fired power stations, we would get roughly 48 gigawatts of dependable capacity, or 15 times more — and each unit of electricity would cost one third as much.
When Hinkley was first considered it was going to charge about £45 per megawatt-hour, a cost comparable with gas or coal. The strike price eventually agreed by the coalition government with EDF was £92.50 per MWh, comparable with onshore wind. Even that was not the end of the negotiation; the government has agreed to index-link that price so that by the time Hinkley opens in the mid-2020s, it might charge not much less than offshore wind, about £120 per MWh.
This was all fine, explained the clever folk in charge of our energy policy at the time, because by the time Hinkley opens the price of gas and oil will have gone through the roof as they start to run out. Even £120 will seem a reasonable price. Those of us who said otherwise, who saw the American shale-gas glut coming and worried that industries such as steel, chemicals and aluminium would be unable to keep operating here if our energy prices went too high, were dismissed as simpletons. As it is, the price of gas-fired electricity, far from shooting up, has plunged and looks likely to stay low for a long while yet. The Hinkley deal looks worse and worse.
Yes, said Hinkley’s supporters, but we need it to keep the lights on when our supply margin gets low in 2017. Well, the supply crunch has come sooner than expected thanks to the closures of coal-fired stations and is here now, while the start date for Hinkley has slipped back from 2017 to 2025, if then. We are going to need other ways to keep the lights on.
Pause briefly to note just what a rip off this “strike price” thing is. It is an agreement between your government and a foreign-owned company that it can charge you almost three times the going rate for electricity for 35 years. It’s a huge subsidy to the company — and remember that EDF is 84.5 per cent owned by the French government — but it is off-balance sheet as far as the government is concerned. As far as a poor pensioner in a draughty cottage is concerned, for whom electricity is a disproportionately high percentage of her cost of living, it is very much on-balance sheet: it’s added to the electricity bill. There is a whiff of interest-group capture of government at our expense.
EDF ought, of course, to be happy with this licence to print money. So why is it hesitating to announce a final decision? Because it cannot get the capital together. It had hoped to sell a 49 per cent stake, to others, but the Chinese alone were interested and they only took 33.5 per cent. It has to fund big losses and huge cost over-runs at the French site in Flamanville while rescuing the reactor manufacturer Areva at a time when its own share price has tanked by 89 per cent since 2007, taking EDF’s market capitalisation below the value of the Hinkley contract. Its credit rating may be downgraded if Hinkley goes ahead.
The only way to finance the project is for EDF to sell off other assets, a plan that has not gone down well with the unions represented on EDF’s board. That is one of the main causes of the delay. The British government should seize the opportunity and cancel the project. As one representative of an energy-intensive business told me: “If even the EDF board is now concerned, despite the treasure on offer, it must surely be time for a rethink.” The political embarrassment would be short-lived: after all, the deal was done by a Liberal Democrat minister.
Don’t get me wrong: I am pro-nuclear (though I have no financial interest in it). But Hinkley risks doing to British nuclear power what Monsanto did to genetically modified crops: killing it for a generation. There is reluctant acceptance of nuclear power in this country; a financial or technical failure at Hinkley C would hit public confidence and investers, threatening the nuclear renaissance.
There are better options. Only just behind Hinkley in the queue, but proceeding much more smoothly through the regulatory process, are two proven technologies. NuGen (60 per cent owned by Toshiba under their Westinghouse brand and 40 per cent by Engie, the French company formerly called GDF Suez) is planning three AP1000 reactors at Moorside near Sellafield. Horizon, owned by Hitachi, is planning to build up to three advanced boiling water reactors at Wylfa and Oldbury. Rumour has it that they reckon they could cope with a far lower strike price, of about £70.
The long-run answer is that smaller is more beautiful. With the right political push, and some streamlining of the regulations, small modular reactors could be rolling off production lines, needing less up-front financing and shorter lead times while generating economies of scale through repeat orders. We have to get away from these behemoth schemes, built like one-off moon-shots, and harness the cost-cutting benefits of the mass production of smaller units.
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