Hinkley: doomed to fail?

Is Hinkley Point C the wrong plant, at the wrong price and at the wrong time? Nigel Hawkins investigates.

Within the next few days, the leader of the world’s most populated country is making a pivotal visit to the UK.

Whilst President Xi Jinping of China will have a raft of issues to discuss, the promise of Chinese money to finance key infrastructure investments, like the very controversial £50 billion HS2 rail project and the proposed new nuclear plant at Hinkley Point C, will be eagerly sought.

In reality, he is likely to sign firm ‘statements of intent’ rather than actually giving the UK unfettered access to a ‘wall of Chinese money’.

The Hinkley Point C new nuclear-build project has critics massing on several fronts, especially with its cost soaring to a massive £24.5 billion for a plant with a capacity of just 3,200 MW.

Importantly, many nuclear experts have expressed profound misgivings about the proposed technology.

The third-generation European Pressurised Reactor (EPR) design, built by the financially-troubled Areva, has faced seemingly intractable problems at the Olkiluoto site in Finland since construction started in 2005 – commissioning is not expected there until 2018.

EDF’s own domestic nuclear new-build project at Flamanville in Normandy has fared little better, with the latest opening date – now 2018 – delayed by around six years.

Various potentially serious technical problems have been encountered, some of which cast doubt on the durability and reliability of some materials used in the reactor core.

With EPR costs soaring, some experts argue that far smaller nuclear plants should be built. In particular, thorium-based reactors are attracting increasing support amongst some nuclear engineers – and they leave less of a waste legacy.

Others argue that the UK should not be building any new nuclear plants at all – and effectively should emulate Germany, Italy, Spain and Sweden, all of whom have opted out of new nuclear-build.

The costs of new nuclear plants are unquestionably enormous, especially compared with gas-fired plants, although the latter do face material long-term uncertainties about gas supply and gas prices.

The 3,200 MW Hinkley Point C complex is now estimated to cost, including the accrued interest during construction, around £24.5 billion. By contrast the planned 1,900 MW CCGT plant at Trafford – admittedly battling to achieve financial close – is priced at £800 million. The price differential per MW is up to 18 times higher.

No wonder, some critics advocate scrapping Hinkley Point C. Moreover, they point to the agreed 35-year inflation-proof £92.50p per MW Contract for Difference (CfD) and the near impossibility of forecasting energy prices so far into the future.

After all, if there were further Chernobyl or Fukushima type accidents, there is a real risk that Hinkley Point C could become a massively expensive stranded asset.

Furthermore, fuel prices could also shift alarmingly, as was the case in the mid-1970s when oil prices quintupled within a few years. During the 1960s, the former CEGB (Central Electricity Generating Board) had constructed a fleet of expensive oil-fired plants.

There is also the issue of timing. After all, the UK’s last nuclear plant at Sizewell B was designed in the 1980s. In the intervening period, new base-load plant has been almost entirely gas-fired.

Undoubtedly, with the overall plant margin now down to virtually zero, the lack of new base-load plant coming on stream remains extremely worrying.

Potential nuclear investors are also wary about the impact of the halving of the oil price over the last 18 months. In its wake, gas input prices have been falling, whilst world coal prices have been low for some time.

Hence, it is argued that the UK should follow Germany and build more fossil-fuel plants – ironically, Germany has recently been commissioning new coal-fired plant, despite its unbridled renewables commitment.

And, of course, Germany is ditching nuclear power, with all its plants due to close by 2022.

Nevertheless, the Hinkley Point C project has undoubted political traction although several experts in the Treasury are believed to harbour serious doubts about its financial viability.

Ultimately, EDF’s board, led by Jean-Bernard Levy, will have to decide whether or not to proceed with such a colossal investment – not an easy decision.

But if President Xi Jinping can deliver substantial Chinese investment into the project, thereby underpinning EDF’s lead status, the quest to achieve financial close will move nearer.

Nigel Hawkins (nigelhawkins1010@aol.com) is a Director of Nigel Hawkins Associates which undertakes investment and policy research