What’s the (Hinkley) point?

What’s the (Hinkley) point?

Britain has been often criticised for the unpredictability of its energy policy. It should take a lesson from Paris. The national utility, Électricité de France (Edf), reliably puts off a final decision on whether to build Britain’s first nuclear-power station in a generation year after nail-biting year. On February 23rd its boss, Jean-Bernard Lévy, clarified that his latest promise to come up with a verdict “very soon” meant “this year”, four years after the initial deadline in 2012. It may now be best for Britain if Edf calls it quits – however improbable that is.

The stakes are high. The £18 billion ($25 billion) project, Hinkley Point C in Somerset, would be a huge engineering work, bigger than the London Olympic Park and on a par with Crossrail, a railway running under central London. It would provide about 7% of Britain’s electricity, and because nuclear energy generates little carbon dioxide, it is central to the government’s commitment to clean power.

It is also symbolic of a “nuclear renaissance” after the failure of a state-run industry that limped along from the 1950s to the 1980s, and equally fraught private ownership during the next two decades. It is meant to show how private investment, with a helpful state behind it, is the best model, giving a renewed lease of life to the nuclear industry, says a new book, “The Fall and Rise of Nuclear Power in Britain”, by Simon Taylor, of Cambridge University’s Judge Business School.

Yet as the book witheringly points out, the result would be “the most expensive power station in history”. The projected costs are comparable to those of the Three Gorges power station in China, which has about seven times the planned generating capacity – albeit non-nuclear. They may rise if Edf’s painful experience of building two of the same reactors in Finland and France is any guide. Both those European Pressurised Reactors are years behind schedule and three times over budget; there is even a possibility that the French one, Flamanville 3, will be dismantled.

To compensate Edf in case of spiralling construction costs, the government has pledged to pay it up to £92.5 per megawatt hour for 35 years once it starts producing – almost triple current wholesale prices. That, Mr Taylor writes, poses the politically sensitive problem of rewarding the firm with as much as £1 billion a year, funded by higher electricity bills, when all of its risks have been overcome. British taxpayers are also on the hook if things go wrong; the government has guaranteed billions of pounds worth of loans on the project.

Even more awkwardly, it puts a pillar of British energy security in the hands of firms mostly or wholly owned by foreign governments. Edf, backed by the French state, is a financial mess, with high debts and negative cashflow that this month forced it to cut its 2015 dividend. The strains could become more severe once it starts spending billions of pounds a year on Hinkley Point. The go-ahead also depends on a Chinese state-owned firm taking a one-third stake, amid uncertainty about the health of China’s economy.

For all its problems, Hinkley Point is not yet doomed. Politics may trump economics; Britain has committed to stringent climate goals, and France would discourage Edf from abandoning Hinkley Point because it would end the dream of a nuclear-export industry. If Edf does pull out, Dieter Helm of Oxford University says the British government has a fallback option: it could float “nuclear bonds” at low interest rates to pay for the project. That, he says, would be cheaper than the 10% annual return that the French would charge.

 

Source: The Economist

Date: March 2016

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