A bleak future for nuclear as the fallout from Hinkley continues

The proposed nuclear site at Hinkley Point C will surely be used as a benchmark in future for how not to manage a new infrastructure project.

Since being announced over five years ago, Hinkley has been beset by mismanagement of the very highest order and the floors of the Department for Energy and Climate Change (Decc) must by now look akin to a barbershop with the amount of hair being pulled out over the project.

From the government’s perspective, you can see the rationale behind Hinkley. Prime minister David Cameron enjoyed using the phrase “vote blue, go green” prior to the 2010 general election and whilst he wants to ensure that energy bills are kept low for consumers, he will certainly not want to risk the UK failing to meet internationally-binding carbon emissions targets under his watch. Energy secretary Amber Rudd has announced the government wants to have phased out coal within 10 years and, if successful, the Hinkley site will be crucial in plugging the resulting energy gap, providing up to 3,200MW of power.

However, since the announcement of Hinkley in 2010 one crisis has followed another. Protest groups have blockaded the site; reports have suggested that the project constitutes illegal state aid; Centrica withdrew from the project in 2013 due to rising costs; accusations have been made by MPs concerning accountability and transparency; and the guaranteed strike price of £92.50/MW has added further weight to the argument that Hinkley offers poor value for money for the taxpayer. Instead of meeting the initial 2020 deadline, the site is now predicted to be up and running no sooner than 2025.

You’d have good reason to think, therefore, that things couldn’t get much worse. Well think again, as over the last couple of weeks further crises have hit. It was revealed on Tuesday last week that the six union board members of EDF – the French state-owned utilities company delivering the project – would vote against the continuation of Hinkley if put to a vote on the next day. Besides these six, there are six members appointed by the state and six independent members on the board. EDF have already postponed making a final decision on Hinkley Point, though so far no date has been set. With a third of the board coming out so publicly against the project, Decc is no doubt feeling jittery.

The very next day after this revelation, Chris Bakken, the project director for Hinkley Point C since 2011, announced that he was leaving the project to ‘pursue new professional opportunities’. EDF have declined to comment on the resignation, though the phrase ‘jumping ship’ has been prevalent on social media and among those in the industry. I doubt that there will be long line of people queueing up to take over the vacant post.

Rudd and Cameron have both made admirable attempts to publicly put a brave face on Hinkley, but behind closed doors there must be heated discussions taking place about the future of the project.

If nothing else Hinkley has proved that the start-up costs associated with a new site are huge, and when the market is as volatile as it is currently it is no wonder that EDF is worried. Whilst it attracted criticism, the government’s decision to guarantee the firm £92.50/MW was a necessary carrot to offer the firm in order to secure their investment. In most markets, companies weigh up the potential gains to be made and the risks associated and then take a view on investment. However, estimating what energy prices will be in five years, let alone ten, is an almost impossible task. With the government cutting subsidies to onshore wind and solar on the one hand, and then making a commitment to phase out coal on the other, new nuclear capacity is essential for the UK energy mix. EDF were, of course, well aware of this and so were well placed to insist on a strike price that would alleviate their concerns.

Likewise, the saga over the Hinkley project highlights the need for the government to ensure that the capacity market delivers new baseload conventional gas generation. If the UK is to continue reducing emissions, and with the future role of nuclear in question, there is only so long that the country will be able to fall back on existing coal sites for readily available energy. As things stand, the capacity market is failing to deliver new gas plants and this issue will become increasingly pressing as we edge ever closer to 2020.

The future of the Hinkley project is by no means clear at this stage. However, one thing that is clear is that if the government is to ensure security of supply over the coming years then new capacity – whether it comes from nuclear or gas – will be vital.

William Pett, consultant, JBP Energy