When Liberum Capital analyst Peter Atherton gave his reaction to the Hinkley deal last week, you couldn’t accuse him of understatement. “Flabbergasted” was his one-word summary. The new nuclear deal was “economically insane” on the government’s part. EDF Energy and its partners had got an “outstanding deal”.
On a leveraged basis, he forecast a return on equity “well in excess of 20 per cent and possibly as high as 35 per cent”. Investors could expect dividends of between £65 billion and £80 billion during the 35-year lifetime of the contract, he said.
Atherton likes big numbers. One tweeter with a sharp memory pointed out that in May 2012 he confidently predicted EDF would demand a £166/MWh “strike price”. Even if you accept Atherton’s latest estimate that the £92.50/MWh agreed will rise with inflation to £121/MWh by the time Hinkley is commissioned, there is quite a disparity.
Allowing for a certain “ahem” exuberance of expression, his conclusion nonetheless reflects a general consensus that EDF Energy has done well for itself.
It was seized on by Green MP Caroline Lucas, who told The Guardian: “When City analysts tell you a contract is ‘economically insane’, it’s time to admit that you might have got it wrong.”
However, she is not known to be a fan of Atherton’s implied alternative: gas. For the £16 billion price tag of Hinkley, you could build 27GW of gas plant – “solving the ‘energy crunch’ for a generation”, he claimed, not commenting on what that would mean for the UK’s carbon budget.
The Department of Energy and Climate Change (Decc) maintains that nuclear will be “competitive” with gas-fired power in the 2020s. With the nuclear price locked in there will be no real competition, of course. It is a carefully chosen phrase that promises nothing. Decc assumes gas prices will continue to rise, as will the carbon price, boosting the relative value of low carbon generation. Analysts say they could just as easily stabilise or even fall.