Forty-eight days after EDF made its final investment decision to go ahead with Hinkley Point C, and government countered with an immediate delay, the new nuclear power plant has finally been given the green light – although a conditional one.
The £92.50/MWh strike price, falling to £89.50 if Sizewell B goes ahead, remains in place – much to the disappointment of opponents who say this is far too expensive. The new condition has been placed on EDF and its investment partner China General Nuclear Power Group (CGN).
This new deal means that EDF will not be able to sell a controlling stake in Hinkley Point C prior to the completion of the project without notifying the government and an agreement by ministers.
This is designed to address the apparent security concerns that prime minister Theresa May has with the deal, which led to the most recent hold-up in a new nuclear saga, which has been running for almost a decade now.
The rationale behind adding such a cause is clear, to ensure the 3.2GW power station is secure. However, the move also gives us an early indication of what May’s new “industrial strategy” is going to look like. It may now be the case that the door is not always open to those with the deepest pockets, especially when it comes to big infrastructure investments.
Some pro-market commentators predicted that the creation of a department for Business, Energy and Industrial Strategy would trigger high levels of government intervention in big business deals. The politicking around approval of Hinkley suggests they were right and this will not be a welcome development for all – a green light was given this time, but setting a precedent for intervention could see other projects blocked in the future.
Of course, many would have welcome a negative decision on Hinkley Point C. The go-ahead from business and energy secretary Greg Clark was met with the expected mixture of delight (from the investors and the pro-nuclear lobby) and disgust (from opponents, who maintain it is an “expensive white elephant”).
The anti-nuclear lobby will be especially perturbed because the new Hinkley deal sets out government’s thinking on how to enable other new nuclear schemes. This includes a legal framework for establishing a “special share” for government in all future nuclear schemes as well as reforms to the way in which foreign ownership of critical assets is scrutinised. The latter reforms are targeted at maintaining national security, showing May’s concerns about Chinese CNG’s involvement in Hinkley are far from a one off.
May is not making a shocking departure from international precedent in requiring such scrutiny, however. Jefferies equity analyst Ahmed Farman told Utility Week these types of conditions are “fairly standard” inclusions by national governments.
“For critical infrastructure where there could be any sort of security issues, this is fairly common. Where there is some huge foreign investment coming in, the government wants to be protective. You can find numerous examples of this around the world.”
Bloomberg Intelligence utilities analyst Elchin Mammadov agrees. He told Utility Week: “These extra conditions are nothing extraordinary when you look at other countries like France who have used golden shares and other mechanisms when it comes to maintain and retaining control of key energy companies and assets.”
“The UK is now taking a more proactive approach than under previous governments,” he added.
Certainly, the new conditions have done little to dampen the enthusiasm of CGN, which has a 33 per cent stake in Hinkley Point C, and EDF. EDF says the new framework provides a “sound basis for the projects at Hinkley Point, Sizewell and Bradwell”. CGN says it is now looking forward to developing these three new nuclear sites.
Giving Hinkley the go-ahead is seen by advocates as vital for the UK. They say it will address the capacity gap expected in the mid-2020s, but also claim it is a timely sign to international investors that the UK is open for business, despite the uncertainty of Brexit. Throw in the local economic boost that Hinkley contracts will give to UK companies – for example, a £100 million deal for Welsh steel to be used in construction – and the final approval of Hinkley is certainly painted in a rosy light.
For mournful Hinkley opponents, such arguments are no comfort. They say it is a twentieth century solution to a twenty-first century energy challenge – an investment we will regret as a nation when renewables, combined with energy storage, demand-side response and energy efficiency measures, show that our demand forecasts and knowledge of grid operation today are irrelevant to a shaken up world of distributed, low carbon energy. Environmentalists also worry about the sense of signing up to the responsibility of storing more nuclear waste for centuries to come – especially given the BBC’s recent exposé of safety concerns at Sellafield.
It will be some time before we see who is right. BEIS’s green light for Hinkley will trigger movement on long-awaited construction work, but it is unlikely the plant will be finished before 2025. In the meantime, other infrastructure projects will need to forge ahead and the government has shown investors are welcome – mostly.
Read NIA chief executive Tom Greatrex’s column on Hinkley being approved here.
Find the industry reaction to the government’s approval to the new nuclear plant here.