Theresa May can show leadership over Hinkley at the G20
When Prime Minister Theresa May arrives in the lovely old eastern Chinese city of Hangzhou this weekend it will be her private talks with other heads of government which excite the nuclear industry more than the G20 Summit itself, though confirmation that implementing the Paris Agreement remains a top priority would be welcome.
Top of the list is her bilateral meeting with President Xi Jinping. Hopefully she and her advisers have by now clarified, at least in private, their reasons for intervening to block progress at Hinkley Point C because these will be of great interest to the Chinese leader.
In the five weeks since this surprise was sprung various theories have been advanced. One of the most common and least rational of these, advanced by some people who ought to know better, is the notion that foreign ownership of a nuclear power station exposes British consumers to the risk of blackouts.
There are two serious flaws in this theory. The first is the inability of its proponents to explain the circumstances in which it would be in the interests of China, or any other foreign owner, to shut down a nuclear plant on whose construction they had just spent billions.
Nuclear power is more capital intensive than almost any other form of energy. All of the huge investment required has to be made upfront during the construction period. This means that almost a decade passes before any return at all is earned on these massive capital outlays and a second one will go by before the project produces a net surplus.
A malignly motivated plant shutdown would therefore be financially catastrophic for any foreign investor. Equally important it would destroy any possibility of future Chinese investment in infrastructure assets in western countries, effectively closing the door on profitable opportunities in many of the world’s most attractive markets.
Furthermore no commercial objection could be raised to including in the contract a provision that if the generation of electricity from a nuclear plant is halted by the owners for political rather than operational reasons then it could be taken over by the British government without compensation being paid.
The second flaw is the ineffectiveness of action to stop electricity production. Although the loss of as much as seven percent of the nation’s supply would be uncomfortable and strain capacity for a while it would not paralyse the economy as effectively as interference in some other foreign controlled infrastructure would.
For a start other generators would increase their output. Additionally by the late 2020s, the earliest possible completion date for Bradwell, the nuclear plant which China may control, the capacity of interconnectors to import electricity from continental Europe will be much greater. National Grid could also ensure that the burden of any shortages was shared by consumers nationwide.
Contrast this with the devastation which would result from a closure of, for example, UK Power Networks. This company delivers electricity to the premises of millions of users in southeast England including the whole of London.
Few people have heard of this crucial infrastructure company. It rarely receives attention from the popular media because it does not send bills directly to domestic consumers. Its ownership by a company based in Hong Kong has been accepted for years without a murmur of protest from the people now clamouring to block Chinese investment in Hinkley.
Yet at the flick of a switch UKPN could impose a total blackout on London. This would inflict far more devastating consequences than the loss of a single nuclear plant could ever achieve. The economic damage alone would be incalculable and there wouldn’t even be a minority British shareholder to protest.
This is not intended to raise any alarms. In my view it is inconceivable that UKPN would ever act in such a harmful and irrational way because it has much more to lose than to gain. But the same arguments apply to other foreign investors too.
So when the Prime Minister discusses these issues with her counterparts let her concentrate on the real concerns previously identified by this column. Issues such as cyber security, completion date guarantees and proportions of localised supply chain work are legitimate subjects for negotiation. Fanciful notions of malign plant shutdowns are not.
The importance of settling the Hinkley question swiftly goes much wider than nuclear, wider even than the whole energy sector. Until the present uncertainty is resolved every infrastructure investment in Britain is affected because all investors hate uncertainty.
The inevitable consequence is that prospective investors will seek higher returns from any investment they make in Britain. The cost of those higher returns will fall entirely on British consumers.
For that reason let’s hope that the Prime Minister enjoys a cup of China’s finest tea beside the scenic West Lake with her host President and returns determined to get the best deal for the British people. One way to do that is to maintain, on this issue at least, her predecessor’s welcome for responsible foreign investment into Britain and its energy industry.