Hinkley Point nuclear deal
FT 28th Jan 2015
The UK's parliamentary watchdog has abandoned plans to scrutinise the Hinkley Point C nuclear project after predicting that a deal over state support would not be struck before May's general election.
EDF, the French company behind the proposed £24bn twin-reactor scheme in Somerset, said it still hoped to finalise a deal by the end of March. Besides concluding negotiations with the Treasury over a financial guarantee to underwrite the project, EDF needs to finalise agreements with investors from China and elsewhere.
But the Commons public accounts committee has given up any hope of examining the contract before the election, according to Margaret Hodge, who chairs the group of MPs that scrutinises public spending. The committee had intended to carry out an inquiry in the next few months.
"We don't think they will have struck a deal by then,” Ms Hodge said. “The National Audit Office have said that it looks increasingly unlikely.”
Tim Yeo, who chairs the energy committee, said any more delays to the scheme would be "extremely worrying” for long term supporters of nuclear power in the UK. “It will be disappointing if it slips to after the election. We do not need yet another element of doubt,” he said.
Hinkley Point C is due to be the first nuclear power station built in Britain for a generation. But it has been dogged by problems - not least when EDF's partner Centrica pulled out two years ago.
When EDF struck a deal with the UK government to develop the site in October 2013, the company said it hoped to have a final sign-off from investors, who will put in half of the capital, by the summer of 2014.
That timetable was disrupted by a year-long state aid investigation by the European Commission that ended with approval in October.
EDF's potential partners in Hinkley Point are China General Nuclear Power Corp, China National Nuclear Corp, France's Areva, Saudi Electric and several pension funds.
The Chinese energy companies, which are rivals, have been at odds over their precise share of the project. Both have been pushing for a substantial share of the supply chain contracts — a demand that has held up negotiations, although it is now understood to have been met. They are also interested in buying into proposed reactor projects at Bradwell in Essex and Sizewell in Suffolk.
Another delay has been the wait for the UK government to verify the final details of state subsidies and a separate infrastructure investment guarantee.
The Department of Energy and Climate Change refused to be drawn on the timing of any deal, saying it was a matter for the company. “EDF still expects the power station to come online around 2023,” it said.
If the talks slip beyond March they will enter the pre-election “purdah” period, when Whitehall comes to a standstill.
EDF said it was “working hard with the UK government to finalise agreements on Hinkley Point C and is making good progress in all areas with the aim of finalising documents by the end of March 2015”.
The company will be pressed by investors about progress on the scheme at its full-year results event on February 12.
New nuclear power stations are seen by the government as vital to keeping the lights on in the UK while achieving ambitious statutory targets for cutting carbon emissions. Hinkley Point has the potential to provide power for more than 5m homes and create more than 25,000 jobs.
Two other UK nuclear projects are being pursued. In December, the Treasury signed a co-operation agreement with developers NuGen, Toshiba and GDF Suez to help them access a finance scheme for a new reactor at Moorside near Sellafield in Cumbria but a final investment decision is not expected until 2018.
There are also plans for a new reactor at Wylfa power station on Anglesey. In 2012, Hitachi paid £700m for the site, previously owned by the German utilities Eon and RWE.
All of the schemes hope to get access to government subsidies designed to boost low carbon energy via “contracts for difference” which, in effect, give a guaranteed price for the electricity generated by the reactors.
In the deal struck with the government, EDF is due to get £92.50 per megawatt hour for 35 years.
But concern is growing over whether this offers good value for money for taxpayers, given the recent slump in oil prices.
Mr Yeo said Hinkley Point was a long-term project and its merits were not weakened by temporary fluctuations in the oil price.
However, Paul Flynn, a Labour MP, recently pressed Sir Nicholas Macpherson, the Treasury permanent secretary, during a hearing of the public affairs committee. “You have agreed to a contract, in this time of falling fuel prices . . . to guarantee a price of £92.50 per megawatt hour, which is twice the present going rate for electricity,” he said. “Is this sensible planning?”
Sir Nicholas accepted these were “good questions” and said he would report back to the committee.
Additional reporting by Lucy Hornby in Beijing