Sunday, 31 July 2016

Why UK Government will be signing a blank cheque for Hinkley and Bradwell in one go

Theresa May may have gained short term kudos for 'stamping' her authority on the Hinkley decision by delaying it until the Autumn. But in reality all she may have done in the long term is emphasised the fact that she sanctioned a decision that resulted in the biggest industrial disaster to have affected the country in modern times. Once the Government signs the project it will be committed to footing the bill for a long running engineering construction foul-up, whatever the terms of the Government's contract may actually say.

It should be obvious from the problem that EDF has had with its attempts to build the two reactors at Okiluoto in Finland and Flamanville in Normandy that there is a very high chance that the project will end in disaster, organised by a company whose leaders ignore commercial logics in pursuit of a discredited piece of technology - the hallmark of a nationalised industry that controls the state. But now EDF say they will go ahead, in 2019, with 'pouring concrete' (ie starting building proper) once Flamanville has 'proved' itself. Yet even this timetable may not happen, pushing EDF further into its financial crisis and producing even more handouts from the french state to EDF.

The UK Government, for its part claims that it will be under no legal obligation to pay for any cost overruns. True, we understand that the contract that awaits signature says that the Hinkley C power plant must start generating by 2033 if the premium price  payments of £92.50 in 2012 prices (£97 per MWh in today's prices) are to be paid. But that is a legal nicety that obscures the political blank cheque that the UK Government will be signing this Autumn.

Imagine the situation in ten years time. It is 2026, and EDF, is beset by generally unfavourable market conditions, having in any case to pay increasing amounts of money to refurbish its own French nuclear fleet. It is facing mounting construction cost overruns on the still far from completed Hinkley C construction and EDF tells the French and UK Governments that it cannot complete the project without further financial injections. We then have the spectacle (as we did in the case of Sizewell B in 1990) of a half-built nuclear power project with no money to finish it. There will then be a political demand that it must be completed. The terms of the contract between EDF and the UK Government will then become irrelevant, and the UK Government will have to pay untold extra billions to finish the project, and fund it thereafter, the only limits being what cost-sharing it can achieve with the French Government itself.

Of course Theresa May, who is said to be reluctant to agree to the Chinese demand on behalf of CGN to be given the right to build a 'Huang' Chinese power plant at Bradwell in Essex, may seek to alter the terms of this agreement. The Chinese have agreed to invest in Hinkley C on the basis that the Bradwell project will be allowed. Indeed the Chinese are responsible for a third of the equity in the project. But the controversies and issues around this Chinese project are likely to considerable.

Apart from controversies over 'security' issues (about which I do not know enough to comment) there are going to be arguments about validation of the safety protocols for the plant. In China there have been complaints that the safety criteria have not been rigorous enough for nuclear power stations. The problem from the point of view of the British Government is that if the Chinese have put money into the Hinkley project, then the British Government will be under great pressure not be seen to be too choosey with the approval of the power plant. Will Bradwell be built according to British or Chinese safety standards? Then there is the issue with the financing and power price for the Bradwell project. Again, the Government will be under great pressure to give the project good terms, or be accused by the Chinese of having reneged by other means on the Hinkley agreement.

If Theresa May says that she will agree to Hinkley C but will not agree to the Bradwell project, then it is likely that the Chinese will walk away from Hinkley, thus ending the project - unless the French Government came up with even more money and risk-taking.  But of course if Theresa May now does give approval for the present scheme, give or take some public relations concessions, then it is May that will go down in history as having personally approved not just a Hinkley disaster but a political and industrial crisis over the Chinese nuclear power project at Bradwell.

Of course by 2030 under this scenario we will still probably have no power from the new nuclear power plant, but otherwise we would have been able, by then, to have put on line maybe another 20 per cent of our power from renewable energy from the money. That is, just using the money that we would be committing to non-existent nuclear power stations, and not including any other renewables we would have put on line anyway.

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