HINKLEY POINT. DILEMMAS FOR TWO GOVERNMENTS AND BRITAIN’S NUCLEAR SAGA CONTINUES.

Britain’s nuclear saga continues. The UK appears to be committing itself to a new generation of nuclear stations. It is making use of a French design and Chinese finance, and confidence ought to be inspired by the huge success of Electricite de France (EdF) in decarbonising the French power sector in the 1980s and 1990s, a generation ago. Public opposition to nuclear has declined with a growing awareness of its potential contribution to reducing CO2 emissions and mitigating climate change, and its importance is reinforced in the studies and reports coming from bodies such as the Committee on Climate Change and the Energy Technologies Institute. So what is going wrong? Why are there now doubts over EdF’s commitment to the project, its financial viability and the apparently very high cost of the Hinkley Point project to the UK consumer?

First, let us summarise some of the fundamentals.

Decarbonising the power sector remains a first priority in meeting UK climate policy and targets for reduction of greenhouse gases and carbon dioxide emissions. The importance of the emissions objective was underlined by the Paris agreement in December 2015, and despite the pre-eminent position of many climate sceptics in the Leave campaign, there is no sign of Theresa May’s new government reneging on those commitments. To do so would be wholly antithetical to the image of an outward looking Britain that the government is trying to restore.

The most influential energy projections point to a necessary and substantial role for nuclear in decarbonising the economy. These include those from the Committee on Climate Change and the Energy Technologies Institute. It needs to be said that they also generally assume development of carbon capture and storage (CCS). CCS funding was withdrawn as part of Osborne’s austerity programme in November 2015, to the distress of the energy industry and some justified outrage. If anything that merely increases the importance attaching to the nuclear contribution in future. Obviously future developments, eg in renewables, interconnection and storage, could in principle change these perceptions, but that is not yet a mainstream position.

The referendum vote changes nothing. It does not change commitment to carbon targets. Nor does it alter in any fundamental way the commercial interests of the UK and France, even though, along with our substantial reliance on interconnection, it emphasises the close interdependence of our economies. Each government has strong interests in advancing UK nuclear. In each case there may be significant elements of industrial strategy that sit behind official support for the project. France wants to maintain a leadership role in a strong European nuclear industry. The UK needs to rebuild some of its own credibility in the sector and will be hoping to provide at least part of the supply chain for any nuclear renaissance. It also needs the capacity to meet growing demand and its low carbon aspirations. If Hinkley makes sense and is “ready to go” then it is attractive. There are however big questions on whether the UK is paying a fair price, and whether the French have on this occasion chosen to back the right nuclear technology.

What is the EdF financial problem? In financial terms EdF can no longer be viewed as the unconstrained state monolith of yesteryear.  Its financial structure is such that, when viewed as a private company, it lacks the balance sheet strength to take on a major project and construction risk on this scale. However EdF remains 85% owned by the French government, and in spite of the noises that will be made about state aids, it is hard to see a project of this magnitude, and strategic and diplomatic significance, being scuppered by largely theoretical concerns about competition law. Whether the project continues to make technical and commercial sense is another matter.

And the technical problems? The French programme of the 1980s and 1990s was hugely successful, and arguably the outstanding example globally of a successful nuclear power programme. So the technical concerns over the Hinkley Point and Flamanville design might be a surprise. Why not replicate the earlier designs?  Unfortunately the world has moved on. With the hiatus over nuclear build in Europe, much of the previous experience has been lost and the key engineers retired. Changes in regulatory and safety requirements, possibly overdone, mean these are fundamentally new designs, not just modifications to tried and tested ones. Finally power stations such as Hinkley are not just pieces of nuclear technology. They are also huge engineering projects. Like many infrastructure projects, eg Channel Tunnel, they are intrinsically subject to the risk of big cost overruns. All parties, including the French and UK governments, should therefore be seeking the highest possible degree of reassurance that we can be confident the technical problems will be overcome.

A good deal for the UK? That is really a question about the price paid, and the details of the contract, including responsibility for unforeseen costs and liability for any failure to deliver on the promised outputs.  Comparison with current or recent wholesale prices is irrelevant, partly because they do not represent a sustainable long run price even for conventional power sources, and partly because the real question is about how to get to the least cost outcome for a low carbon system. Nevertheless there are strong suspicions that the UK may not have secured a good deal on Hinkley Point. If so this can be put down at least in part to a lack of negotiating and technical expertise in the old DECC, and possibly to ideological refusal to countenance direct UK government funding, which Nick Butler in the FT has estimated could have saved some 20% on the kWh price.

Alternatives for the UK if Hinkley Point flounders

Abandoning nuclear and reverting to new gas fired plant as a transitional measure looks an unattractive option in the context of low carbon targets, since these would risk early closure as emissions targets progressively tighten post Paris. Placing a heavier emphasis on carbon capture means reversing the foolish cancellation of funding in 2015, but this is almost certainly a necessary measure in any case, rather than a replacement for Hinkley.

Even if the decision is taken not to proceed with Hinkley, this is unlikely to be the end of the nuclear story in the UK. Further stations are anticipated, using Chinese technology and different designs. There is also increasing interest in smaller scale “modular” nuclear plant, which avoids many of the potential problems of large scale civil engineering, and relies on factory assembled parts where smaller scale and the benefits of replication can also reduce the risk of serious design flaws emerging at a late stage.

Whatever the outcome of tomorrow’s EdF Board meeting, we can expect to hear more about these issues in the months and years ahead. Doubts over the commercial choices and some of the decision making processes also lead neatly into some of the governance and “system architecture” issues that are gaining prominence and which will be addressed in this blog later this summer and during the autumn.
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I have learned a great deal about the history of the UK nuclear programme, and some of the background to the Hinkley story, from listening to talks given by Simon Taylor of the Judge School at Cambridge. Simon has a blog at http://www.simontaylorsblog.com/His new book on the subject is now available: http://www.amazon.co.uk/Fall-Rise-Nuclear-Power-Britain/dp/1906860319/ref=sr_1_1?s=books&ie=UTF8&qid=1456993863&sr=1-1