Friday, 20 April 2018
Problems with French nuclear plant could spell final end of Hinkley C project
This week's story about problems with pipe welding at the French nuclear plant being built at Flamanville could spell the end for the Hinkley C nuclear project. Treasury backed loan guarantees to build Hinkley C have been linked to a target date for commissioning of the Flamanville plant of the end of 2020. Yet the current target date of completion by the end of 2019 has been thrown in doubt by the freshly announced problems.
The main focus of attention of this problem for Hinkley has simply been that the design of the Flamanville plant - the European Pressurised Reactor (EPR) - is the same as that to be built at Hinkley C and that the engineering problems bode ill for the British scheme (1). That is right, but it is rather worse than this. The commercial issue is that if the French plant is not commercially operating by the end of 2020 then it seems the Treasury will not be able to give loan guarantees for the scheme. According to the analyst Professor Steve Thomas, the rules agreed between the European Commission and the British Government stipulate that ''until Flamanville 3 was in commercial service, there would be a cap on the guaranteed loans effectively meaning funding would be primarily through equity' (2)
It is very difficult to see how EDF could build the plant without the Treasury loan guarantee - something like £17 billion (probably more) would be needed as a loan. EDF just won't have the ability to raise anything like £17 billion on the bond markets. Indeed the decision to go ahead with preliminary works on the site (building a jetty and a cement works) alone, without the loan guarantee being in place, was regarded as so risky that the firm's Finance Officer resigned in protest at the decision. But EDF will not start building the main parts of the power station until it has the necessary finance. Even if all went well (what are the chances of this?) the Hinkley C project would not be up and running until 2027. But if the Treasury does not give loan sanction, and the contract seems to say that Flamanville has to be running by the end of 2020 for this to happen, then the project will not be built. - Unless the whole thing is re-negotiated of course, which would seem very difficult to achieve.
Construction of the Flamanville EPR began in 2007.
It may be that a failure to complete Flamanville by the end of 2020 will give anti-Hinkley officials some relief as they will be very worried that the offer of loan guarantees will turn into a black hole. Otherwise, given the experience of building nuclear power stations, including (especially) EPR projects, it seems highly likely that the Government would have to pay the bill through the loan guarantee agreements. The notion that the 'risk' of the project lies with EDF as opposed to the British Government is very likely to be proved wrong. Some of us have known this since the start. Others have just been kidding themselves.
(1) Vaughn, A., (2018) 'EDF warns of faults at nuclear power station it is building in France', Gaurdian, April 10th, https://www.theguardian.com/business/2018/apr/10/edf-warns-of-faults-at-nuclear-power-station-it-is-building-in-france
(2) Thomas, S (2016) 'The Hinkley Point decision: An analysis of the policy process' Energy Policy Vol 96 pp 421–431, page 427