Hinkley C - don't say I didn't warn you!

In 2016, I called for Hinkley C to be scrapped. Now its commissioning has been pushed back to the end of the decade and its costs have ballooned to as much as £48 billion in 2024 money. I was right.

Image: EDF/C

“The case for Hinkley Point C has collapsed: It’s time to scrap it.” This was the title of an article I wrote for City AM in July 2016.

The story so far

For those who have forgotten those heady days, a quick recap. July 2016 was one month after the UK voted for Brexit. Prime Minister David Cameron and Chancellor George Osborne (whose pet project was Hinkley C, aided by energy minister in the previous Coalition government and currently LibDem leader, Ed Davey) had resigned. Theresa May had just taken over as Prime Minister.

The project already had a ghastly history. In the early 2000s, the nuclear industry, with French champion Areva in the lead (later driven into bankruptcy by cost overruns at Flamanville and Olkiluoto and rescued by EDF in 2017), announced a “Nuclear Renaissance” and was lobbying for a new build programme in the UK to replace aging plants set for retirement. In the absence of evidence, they claimed new plants would produce power for £24 per MWh (£39/MWh in 2024 money, or $50/MWh).

The Labour Party, long dead set against nuclear power, were convinced. In January 2008, Prime Minister Gordon Brown declared, in the preface to a White Paper on nuclear power entitled “Meeting the Energy Challenge” that “nuclear should have a role to play in the generation of electricity, alongside other low carbon technologies.” The White Paper estimated the total cost of building a 1.6GW nuclear plant at £2.8 billion - which would translate into £5.6 billion for Hinkley C’s 3.2GW (£9.0 billion or $11.5 billion in 2024 money).

EDF’s UK CEO Vincent de Rivaz was cock-a-hoop, predicting that Brits would be cooking their turkeys with power from Hinkley C by Christmas 2017. But remember that figure - £9.0 billion for 3.2GW.

By October 2013, Osborne and Davey had agreed a Contract for Difference with EDF for electricity production at a strike price of £92.50/MWh in 2012 money (£132/MWh in today’s money or $169/MWh) - rising with inflation for 35 years, but dropping to £87.50 (£125/MWh in today’s money or $173/MWh) if a second EPR were to be built. That EPR is Sizewell C - of which more later.

At that point, Hinkley C was expected to cost £16 billion in 2015 money (£22 billion in 2024 money or $28 billion). It was due to come online in 2023 and continue cooking Christmas turkeys for 60 years.

Since then, on five separate occasions EDF has announced that costs have increased, and the commissioning date pushed back. The only delay which was not fully in the control of EDF and it suppliers in the nuclear and construction industries was Covid - which can be blamed for around a year of delay and a couple of billion of cost increase, but not more.

Last week - yet another delay and cost increase

So then last week, we learned that the plant would be lucky to open much before 2030 - that’s 13 years after de Rivaz’s 2017 promise - and costs would be between £31 and £35 billion in 2015 terms (2015 is used because the CfD figures were set in 2015 money). That is £42 to £48 billion in 2024 money, or up to $61.4 billion).

Remember, we were first promised it would cost £9 billion in today’s money, so that’s an increase of between 4.6 and 5.4 times.

Now, I know that supporters of the project and hard-core nuclear fans will be bursting blood vessels at this point, desperate to jump in an explain that most of the difference between £9 billion and nearly £50 billion is down to financing cost resulting from the use of the CfD mechanism, regulatory cost, delay in government decision-making and so on. But I’m going to say it: I don’t care.

If the nuclear industry says it can build something for £9 billion, it needs to build it for £9 billion. That’s what happens in other industries. If the right number, including finance costs was £22 billion, it should have said so all along. And if it knows that there is a good chance of cost over-runs more than doubling the cost, it should include an appropriate contingency when it promotes and negotiates projects.

How big things (don’t) get done

It is not like cost over-runs in nuclear projects are a big secret. The world’s leading academic expert on project management is Danish Professor Bent Flyvbjerg, author of How Big Things Get Done, who joined me on Cleaning Up last year. Having build a huge database of projects of different sources, he can definitively show that nuclear plants are worse only than Olympic Games in terms of cost over-runs. On average they go 120% over the budget, with 58% of them going a whopping 204% over budget.

The common trope among nuclear fans is that it is only in the western world that nuclear new build is either problematic or exorbitantly expensive, and this is driven by excessive regulation.

While excessive delays in emerging nuclear powers are certainly less common, there is no transparency over how this is achieved. There are ample examples of problems: the use of fake certification documents, the sealing of deals for reactor sales by military inducements, cutting corners on safety, failure to maintain control of the fuel supply chain, failure to disclose problems and accidents; unexplained accidents on aging plants.

There is also no transparency over the real cost of their plants. Put simply, these are are whatever their leaders say they are: it is they who decide the cost of capital, state guarantees, whether safety standards meet or exceed international standards, whether safety standards are enforced, the environmental standards applied to the supply chain, the speed projects proceed through licencing, the need or not to provision for decommissioning costs, the diversion of costs to military, energy or industrial budgets, and so on.

Back to 2016

Now let’s get back to Hinkley C, and 2016. One of the first things Theresa May did when she took over from David Cameron was to ask her security advisors to review the wisdom of allowing state-owned China General Nuclear to invest £6 billion in the project. In the end May backed down and allowed the investment to go ahead, but that is the background to my piece: the project’s future was in doubt, and it was the last realistic chance to kill it before tens of billions of pounds had been invested. And this is what I wrote: The case for Hinkley Point C has collapsed: It’s time to scrap it.

Perhaps of most interest, given the recent breathless announcements by French ministers of their desire to build a lot more new nuclear power stations, and the money being thrown by the UK government at Sizewell C before it has reached a final investment decision, is this section:

There are at least three ways in which [Greg Clark, the freshly-appointed Minister at BEIS] could potentially replace its supply contribution more cheaply, more quickly, and with more impact on UK industry and exports.

He could mandate more renewable generating capacity, paired with interconnections and a range of technologies to manage intermittency. He could push through a fleet of new gas power stations and get serious about carbon capture and storage. Or he could spend a lot less than £37bn on energy efficiency, simply removing the demand for 3.2 GW of base-load power.

Alternatively, if the government still has a nuclear itch, Clark needs to ask why Hinkley C is the right way to scratch it. After decades of technological stagnation, new nuclear technologies are approaching commercialisation, offering passive safety, so they can’t melt down in the event of a power failure, and smaller scale, so they shouldn’t take 15 years to see the light of day.

It is worth remembering that while construction costs are in the £42 to £48 billion range, the 35 years of electricity at £87.50 or £92.50/MW in 2012 money, adjusted for inflation will cost UK energy users a gargantuan £111 or £116 billion over the next 35 years. Could we use that money better? You bet.

Summary

So there you have it. 2016 was a missed opportunity, most likely the last opportunity to scrap the benighted project, one of the worst blunders in the history of public procurement and of the UK’s energy industry.

Does that mean we should scrap it now? It’s almost certainly too late. EDF has probably spent so much on the project, that the net present value of its revenues exceeds the remaining cost to bring the project to completion.

What I do know is that the UK must resist the French government demands that it put its hand in the public pocket for yet more money to support the project. The whole point of the structure put in place, with its super-generous and inflation-protected CfD strike price, was that EDF was to bear the risk of cost over-runs. These will come back to bite UK energy users in the form of higher power costs from Sizewell C, should that project go ahead. If the UK taxpayers have to bear the cost of cost over-runs, let’s just nationalise and be done with any pretence that the market bears any risk from nuclear power projects.

I know many will say I am just being anti-nuclear.

No, I’m pro-nuclear. I have been vocal about Germany’s premature shut-down of its fantastically safe and productive nuclear power fleet, which I have called a “crime against the climate” and against anyone with respiratory disease. I would love to see new nuclear plants built, and I am happy for money to be spent developing the next generation of modular reactors and on fusion power. I just demand that the nuclear industry owns its problems, stops blaming activists or regulators, and learns to deliver projects on time and on budget.

Otherwise, to paraphrase Oscar Wilde, “if Hinkley C, Flamanville, Olkiluoto and Vogtle are the way the nuclear industry treats its projects, it does not deserve to have any”.

Selah.