Government uncertainty still a threat to new nuclear

Just when the long running saga of Hinkley Point C looked as though it was finally ending with the EDF board’s majority vote just over a fortnight ago in favour of going ahead an unforeseen delay has occurred.

Downing Street’s last minute intervention has added a new element of uncertainty to this already complex process. However, it could prove helpful if Ministers, and notably the very capable new top team at the Department for Business, Energy & Industrial Strategy (BEIS), use the next few weeks to clarify UK energy policy.

First and foremost, there needs to be unequivocal confirmation that Britain remains committed to achieving its legally binding carbon emission reduction targets. This will remove lurking suspicions that the nuclear new build programme might be replaced by a dash for gas.

Gas has an important transitional role to play in the world’s move away from fossil fuel dependence. However, the complete decarbonisation of electricity generation which is needed by mid-century requires investment to switch increasingly to the low carbon technologies as well as to greater energy efficiency and better demand side management.

Confirmation that our climate change obligations will continue to drive energy policy is also needed to reassure the wider nuclear industry. Without it fears that Britain no longer offers a sympathetic home for new nuclear plant will grow.

Among others awaiting the outcome of the government’s review will be Hitachi and Toshiba, the backers of the next two nuclear developments in the pipeline. Both are spending time and money, in good faith, bringing forward their projects in the expectation that investment in the nuclear industry will continue to be supported.

Turning to Hinkley itself there are legitimate concerns about the £92.50 strike price. Realistically, however, any attempt to negotiate this price down stands little chance of success and is more likely to give EDF an excuse to walk away from the project.

Aspects of the deal which reasonably can be reviewed include the completion date for construction and future site allocation. Given the unresolved difficulties at Flamanville, and the consequent doubts about how long Hinkley will take to build, Ministers should now demand a guaranteed completion date of not later than 2025.

The value to Britain of baseload electricity from Hinkley, and therefore the justification for the high strike price, will decline if commissioning of the plant is further delayed by technical problems during construction. A progressive cut in the strike price could logically be applied for late delivery of the project.

Proposing tighter penalties for construction delays will test EDF’s confidence in its ability to deliver this hitherto unproven technology on time. This approach could be backed up by reconsideration of the future of the site at Sizewell.

If an alternative nuclear vendor, with a technology that is already in commercial operation elsewhere, is capable of generating electricity for British consumers at a lower price the government should be willing to explore how soon this can be done and how the largest number of supply chain jobs can be secured.

Some would argue that the money earmarked for Hinkley would be much better spent on renewables, such as offshore wind.  There is, however, clear recognition that renewable energy cannot, by itself, provide the reliable baseload power on which both business and domestic consumers in all modern economies depend.

Many renewable technologies, including wind and solar, are intermittent generators and until we have cheap forms of large scale electricity storage they need to be backed up by other forms of generation. That makes nuclear power essential to the energy mix.

Much of the current debate about Hinkley’s future is focussing on the acceptability of Chinese investment in Britain. A minority Chinese stake in a plant controlled by a French (government controlled) company using European technology ought to be relatively uncontroversial. The real issue is the prospect of Chinese control and operation of Bradwell in Essex.

Opponents of this idea must believe that, having invested billions of pounds constructing Bradwell, China would be ready to jeopardise its success and thus wave goodbye to any prospect of earning a return on their investment. Doing so would also destroy any prospect of further Chinese investment in foreign infrastructure projects.

It’s hard to see in what circumstances such an action could benefit China. A malign owner of Britain’s main airport, London’s water supply or one of our largest mobile phone networks, all of which are already in foreign hands, could do more harm more quickly to Britain’s economy than closing down a single power station, however inconvenient the sudden loss of up to 7 per cent of our electricity supply might be.

Hopefully the review of the Hinkley decision will swiftly conclude that no vital national interest is threatened by Chinese control at Bradwell. This conclusion can reasonably be made conditional on substantive progress being made on the cyber espionage concerns which rightly worry Britain and other western countries.

This outcome should also reassure Horizon and NuGen that if they progress to the point at which they have a credible value for money proposal no new obstacles will be put in their way.

It is not unheard of for national governments to introduce national security tests with clear conditions and criteria to address such concerns. In Europe, such requirements have been known to take the form of stipulating at least 60% EU/ETA ownership to avoid majority foreign control of large infrastructure projects, or even specifying vendors for certain aspects of the development, for example, instrumentation and control, to minimise the risk of cyber security surprises.

Such conditions can help to remove the politics that increasingly surround large infrastructure projects, such as new nuclear build, and deliver the much needed investor certainty critical to getting capital intensive projects with long payback periods off the ground.

Urgent resolution of the current uncertainty is clearly desirable. Without it there’s a danger that the cost of future investment in essential infrastructure of all kinds will rise as investors demand a political risk premium for British projects. This would have an impact way beyond the energy industry and its burden would be borne by consumers in the form of higher prices.

Hopefully, one aspect of the new industrial strategy now being developed in Whitehall will be that Britain will drive a hard bargain with foreign investors and expect legitimate worries about cyber security to be addressed. In return it should also make clear that any contracts entered into with the British government will not be overturned by Ministers without proper cause.

NNWE continues to believe that nuclear power has an essential role in Britain’s energy mix and that of many other countries if electricity sector decarbonisation is to be achieved. We also believe that to fulfil that role nuclear must match the falling costs of both gas and renewables.

Notwithstanding the present uncertainty Britain has a chance to lead Europe to an open minded and objective assessment of which nuclear technologies offer consumers, employees and taxpayers the best prospects. Greener electricity produced at lower cost with good jobs for any host country is the prize that’s on offer.