French reactor problems cast doubt on UK nuclear power plant

Jim Pickard, Chief Political Correspondent Financial Times, June 14 2015

Problems with a reactor in northern France have triggered deep concern in the British government about the future of the UK 's first new nuclear power station for 20 years at Hinkley Point in Somerset .

EDF Energy, the French state-owned company behind Hinkley, has suffered a five-year delay and escalating costs at its flagship Flamanville project in Normandy .

Further concerns mounted last week when a leaked report from France 's nuclear safety watchdog highlighted faults in Flamanville's cooling system.

That followed a warning in April by the French Nuclear Safety Regulator that there was an excessive amount of carbon in the steel of the reactor vessel.

EDF's struggles in France have prompted worries at a senior level of the Treasury about the £24bn Hinkley scheme.

"I think there are serious questions about the technology,” said one Treasury figure. "Only if that can be fixed is there a desire to go ahead with it . . . on balance.”

Senior officials have discussed whether to “start from scratch” with a different, more established reactor technology from elsewhere.

The Hinkley project, which would provide 7 per cent of Britain 's electricity, is the first of several reactors in the pipeline: with others planned for Anglesey and Cumbria.

EDF originally hoped to complete the project by 2019 but that timetable has already slipped to 2023.

Talks between the government, EDF and its two Chinese partners over a final financing package were supposed to be completed by March but have dragged on.

Now officials and executives are working towards a fresh deadline of October, when China's President Xi Jinping has a state visit to Britain.

Before then, however, the Treasury must complete a review of Hinkley by its "major projects authority”. While officials expect it to get the green light, one said "it would be unwise to predict either way”.

The Treasury has struck an agreement promising to pay a guaranteed price for energy generated by Hinkley for 35 years.

It has also promised to guarantee £16bn of debt towards the project - but it has inserted conditions to ensure that taxpayers are not left on the hook if the technology fails.

Instead the agreement stipulates that it will be shareholders and not the government that retains the “principal exposure to the viability of the EPR technology” - until EDF can prove the success of its other projects such as Flamanville.

"It's pretty natural that the UK government would want to see that the technology actually works before going ahead,” said one person close to EDF's Hinkley project based in Paris.

Against that backdrop there have been discussions about trying to borrow the sum from the Chinese government instead.

That would set a new precedent for Chinese overseas investment, and would likely have to be agreed on a state-to-state level before the exact funding sources were identified, a nuclear industry official said.

The Tories reaffirmed their commitment to Hinkley in their election manifesto and prime minister David Cameron declared his commitment in April, saying he wanted EDF to start work "as soon as possible”.

But there are growing suspicions in Westminster and within the industry that the Treasury has been dragging its heels over supporting the project. One source close to EDF said he believed there had been "briefings from people at the Treasury” against the deal.

Some civil servants believe the government struck an overgenerous "strike price” to buy energy from Hinkley's two reactors for 35 years.

“I think Treasury officials would not be disappointed if Hinkley never happened,” said one Whitehall source. “They have been foot-dragging for at least a year.”

One Tory figure said: "I think the Treasury don't really want that deal to work.”

EDF suspended work at the Somerset site in April with the loss of 400 jobs until the final investment decision is made, angering the unions.

Jonathan Reynolds, shadow climate change minister, wrote on Sunday to Amber Rudd, the new energy secretary saying: "I am asking you today to admit the project will not proceed and inform parliament what your alternative energy strategy will be.”

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 co-investors 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 2014.

EDF still has the support of two Chinese partners but they have delayed the final sign-off on the deal.

Meanwhile Areva, which was due to invest 10 per cent of the equity, is set to have its reactor business taken over by EDF as part of a government-brokered deal. It could see EDF pay about €2.2bn for Areva NP, Areva's reactor division, in the coming weeks, according to people close to both companies.

Additional reporting Michael Stothard in Paris and Lucy Hornby in Beijing




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Page Updated 16-Jun-2015