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Where would collapse of Hinkley Point C project leave the UK’s energy security plans?

Issues affecting electricity generators and the energy market as a whole.

The latest development in the increasingly wonky ‘new nuclear’ saga that is the Hinkley Point C (HPC) project, is that EDF’s CFO Thomas Piquemal has left the company, apparently in the wake of a big row with his boss and CEO, Jean-Bernhard Lévy, over the timing of the utility giant’s final investment decision on the £18bn HPC project.

Mr Piquemal was pressing for a three year delay to assess whether the development could break the company’s finances. His concern centred principally on the fact that EDF, already heavily indebted, will need to sell some corporate assets to keep its finances sound during HPC’s 10-year plus construction phase.

Piquemal is believed to be concerned that Lévy wants to proceed with Hinkley before those disposals have been completed. As well as huge debts, EDF is grappling with a collapse in power prices, huge cost overruns on another nuclear project in France and a need to spend tens of billions of euros upgrading its domestic reactors.

It has also had to borrow billions just to pay dividends to its state shareholder in recent years (the French government own 85% of it. Furthermore, the French government has also put pressure on EDF to take over Areva, the cash-strapped state-owned French nuclear engineering company.
To top it all, projects using the technology being deployed at Hinkley have a poor track record – thus far never coming in on time or on budget. Two reactors of the EPR (European Pressurised Reactor) type to be built at Hinkley, under construction in France and Finland, are both running several years behind schedule and billions of euros over budget. Two more in China have also suffered delays.

Hinkley Point C’s 35-year £90+/MWh Feed in Tariff is a significant reward indeed to get the plant built but the danger is that doing so, over the next 10 years or so, may drive EDF to the brink of bankruptcy.

It has not been a great couple of weeks for the new nuclear lobby as on the fifth anniversary of the Fukushima nuclear disaster the ex-Prime Minister of Japan Naota Kan came out publicly to say that nuclear is not safe enough, reinforcing his view that it makes no sense to build new plants, particularly in countries such as Japan and the UK where there are no long-term storage facilities for nuclear waste.

Kan said: “What I experienced as prime minister made me feel that it does not make sense to rely on nuclear. New generation plant designs are supposed to increase safety but all these do is increase the cost.”

DECC already spends about 42% of its total budget, or £2.5 billion per year, on dealing with legacy nuclear waste. Of that, around £1.6 billion is spent on managing the various plants and storage facilities at Sellafield, the huge site in Cumbria which is home to the radioactive remains of nuclear weapons and energy programmes dating back more than half a century. The National Audit Office (NAO) anticipates the total future costs for decommissioning Sellafield, over a century or so, will be £67 billion. So it is clear that although new nuclear opens up the potential to shore up our energy base-load requirements for the medium and long-term, it also ensures that we keep paying an ever-larger sum to cope with the resulting nuclear waste and de-commissioning bills. So not only is the energy that they will be producing going to cost us more than energy from other sources but handling the resulting waste that it produces is going to add to that bill for several generations to come.

Scarily the full comparable construction and running cost comparison figures, plant type by plant type, are not readily available. It is complicate because for new Combined-Cycle Gas Turbine (CCGT) plants for example you need to guess-timate what the average price of gas will be over a plant’s 30 year lifespan; whereas the future cost of storing nuclear waste and decommissioning the HPC’s of this world in say 70 years’ time will have to be factored in.
However, if you look at the costs of construction alone, CCGT is the ‘out and out’ winner by a country mile. Gas-fired power stations cost up to £0.5m/MW to build, whilst new nuclear is in the realm of £6.9m/MW so new nuclear is nearly 14 times more expensive to build and that’s assuming they come in on budget which, we have already been told, they don’t.

New Nuclear does however tick both the green and ‘energy security’ boxes. HPC is set to deliver 7% of the country’s electricity, powering some five million homes, while being carbon neutral; as opposed to gas plants which, although a much lower carbon option than coal-fired generation (emitting about half the amount of carbon dioxide), are still much less green than nuclear. Indeed to create the same amount of energy as HPC, a new CCGT plant would need to pump out nine million additional tonnes of carbon dioxide per year.

Therein lies the dilemma: do we hit those vital carbon emission reduction targets and, once construction is complete, shore up our increasing energy security with new nuclear; while potentially increasing energy prices considerably and storing up larger nuclear waste and decommissioning bills 60-70 years from now?

Or do we instead accelerate investment in renewables for the medium-term; while investing in new CCGT plants to solve the shorter term energy base-load squeeze, jeopardising those carbon reduction targets as we go? It is these weighty decisions which seem to have left the DECC (and the Government as a whole) in paralysis, while all the while our capacity margins look increasingly razor thin. If the HPC project goes on hold for another three years or more, this will undoubtedly force a major energy policy rethink.

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