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Politico (Belgium): OPINION: The pros and cons of Hinkley Point [Tim Yeo/Mycle Schneider]

Thursday 15 September 2016

OPINION: The pros and cons of Hinkley Point

Politico, 7 September 2016, 3:54 PM CET, Updated 9/7/16, 4:54 PM CET

By Tim Yeo and Mycle Schneider

The Hinkley Point C power plant was supposed to herald the start of a new nuclear era in the U.K., as the country shifted away from coal-fired generating stations.

Instead, the project has become embroiled in growing technological, environmental and diplomatic worries.

French energy company EDF, the lead contractor, went through enormous turmoil before deciding this summer to support the project, in which China is a partner. British Prime Minister Theresa May’s decision to review Hinkley blindsided both France and China, and they’re now waiting for a verdict by the end of this month.

Environmentalists question whether it makes sense to opt for nuclear instead of investing in renewables. There’s also concern that the government’s subsidies are much too generous.

However, the project’s backers insist that Hinkley makes financial and environmental sense.

POLITICO asked for two views on the power plant.

First, Tim Yeo, chairman of New Nuclear Watch Europe, a pro-nuclear campaign group, makes the case for Hinkley. Then Mycle Schneider, a Paris-based independent international analyst on energy and nuclear policy, looks at some of the drawbacks.

London should approve Hinkley as soon as possible

The British government’s unexpected delay in approving Hinkley Point should end with an unequivocal confirmation that the U.K. remains committed to achieving its legally binding carbon emission reduction targets.

This will remove lurking suspicions that the program of building nuclear power plants might be replaced by a dash for gas.

Downing Street’s surprise decision — taken in the wake of EDF voting to approve the £18 billion project — also risks creating disarray in the broader nuclear industry. Among others awaiting the outcome of the government’s review will be Hitachi and Toshiba, backers of the next two nuclear developments in the U.K. pipeline. Both are spending time and money, in good faith, bringing forward their projects in the expectation that investment in the nuclear industry will continue to be supported.

Turning to Hinkley: there are legitimate concerns about the £92.50 strike price [setting a guaranteed price for electricity produced by the plant.] Realistically, however, any attempt to negotiate this price down stands little chance of success and is more likely to give EDF an excuse to walk away from the project.

Aspects of the deal that reasonably can be reviewed include the completion date for construction and future site allocation. Given the unresolved difficulties at Flamanville, a French plant using the same technology as at Hinkley, and the consequent doubts about how long Hinkley will take to build, ministers should now demand a guaranteed completion date of not later than 2025.

The value to Britain of baseload electricity from Hinkley, and therefore the justification for the high strike price, will decline if commissioning of the plant is further delayed by technical problems during construction. A progressive cut in that price could logically be applied for late delivery of the project.

Proposing tighter penalties for construction delays will test EDF’s confidence in its ability to deliver this hitherto unproven technology on time. This approach could be backed up by reconsideration of the future of the site at Sizewell, where EDF plans a second plant.

If an alternative nuclear vendor, with a technology that is already in commercial operation elsewhere, is capable of generating electricity for British consumers at a lower price, the government should be willing to explore how soon this can be done and how the largest number of supply chain jobs can be secured.

Some would argue that the money earmarked for Hinkley would be much better spent on renewables, such as offshore wind. There is, however, clear recognition that renewable energy cannot, by itself, provide the reliable baseload power on which both business and domestic consumers in all modern economies depend.

Many renewable technologies, including wind and solar, are intermittent generators and until we have cheap forms of large-scale electricity storage they need to be backed up by other forms of generation. That makes nuclear power essential to the energy mix.

Much of the current debate about Hinkley’s future is focusing on the acceptability of Chinese investment in Britain. A minority Chinese stake in a plant controlled by a French state-owned company using European technology ought to be relatively uncontroversial. The real issue is the prospect of Chinese control and operation of a planned nuclear plant at Bradwell.

Opponents of this idea must believe that, having invested billions of pounds constructing Bradwell, China would be ready to jeopardize its success and thus wave goodbye to any prospect of earning a return on their investment. Doing so would also destroy any prospect of further Chinese investment in foreign infrastructure projects.

It’s hard to see in what circumstances such an action could benefit China. A malign owner of Britain’s main airport, London’s water supply or one of our largest mobile phone networks, all of which are already in foreign hands, could do more harm more quickly to Britain’s economy than closing down a single power station, however inconvenient the sudden loss of up to 7 percent of our electricity supply might be.

Hopefully the review of the Hinkley decision will swiftly conclude that no vital national interest is threatened by Chinese control at Bradwell. This conclusion can reasonably be made conditional on substantive progress being made on the cyber espionage concerns which rightly worry Britain and other Western countries.

It is not unheard of for national governments to introduce national security tests with clear conditions and criteria to address such concerns.

Such conditions can help to remove the politics that increasingly surround large infrastructure projects, such as new nuclear plants, and deliver the much-needed investor certainty critical to getting capital intensive projects with long payback periods off the ground.

Urgent resolution of the current uncertainty is clearly desirable. Without it there’s a danger that the cost of future investment in essential infrastructure of all kinds will rise as investors demand a political risk premium for British projects. This would have an impact way beyond the energy industry and its burden would be borne by consumers in the form of higher prices.

Hopefully, one aspect of the government’s new industrial strategy will be that Britain will drive a hard bargain with foreign investors and expect legitimate worries about cybersecurity to be addressed. In return it should also make clear that any contracts entered into with the British government will not be overturned by ministers without proper cause.

Tim Yeo is chairman of New Nuclear Watch Europe, a pro-nuclear campaign group.

The gigawatts and mega-mistakes of Hinkley Point C

Mycle Schneider

Unprecedented — that’s the appropriate description of Hinkley Point. Financially excessively risky, technologically unproven and yet outdated before the start of construction, its implementation is unacceptably slow in a rapidly changing energy world.

It’s the country’s largest-ever investment project and guarantees the builder an extravagant electricity price for three-and-a-half decades. Two foreign government-owned corporations — France’s EDF and China’s CGN — are to provide the capital for this strategic nuclear project, based on a technology that has never been in operation anywhere else.

Hinkley has also received extraordinary levels of criticism in France as well as in the U.K. The main concern being that the project is ill designed and could be financially crippling for EDF or the U.K. taxpayer.

The project is grotesquely expensive — on bad days, the total estimated investment exceeds EDF’s stock market value that shrunk by half in a year. EDF was kicked out of the national CAC40 blue chip index and downgraded by rating agencies, which made it clear that the Hinkley investment decision would be credit-negative.

Against all odds, state-controlled EDF remains firmly committed to Hinkley, but why?

The main drivers of the project are governments.

The French political and nuclear establishments want Hinkley because they know that the future for nuclear power, a major tool of French geopolitics, is at stake.

The unit under construction at the French Flamanville site, of the same type as the ones planned for Hinkley, is six years behind schedule and at least four times as expensive as planned. It was launched in order to rebuild and maintain vital technical and managerial skills, not to generate more kilowatt-hours that nobody needs. Instead, Flamanville has turned into an ongoing demonstration object for management failures, fabrication defects, quality-control problems and even poor working and living conditions for foreign workers.

China, which now has the world’s largest nuclear construction program, sees Hinkley as the first step towards the development of a Chinese reactor export market in the EU.

London was also a backer — until July’s surprise decision by May to reassess the Hinkley project.

But if EDF really delivered, it would be a disaster for the U.K. The National Audit Office said it could cost the British taxpayer as much as £30 billion, covering the difference between low wholesale electricity prices and the exorbitant fee guaranteed by the U.K. government to EDF.

And if EDF fails — the much likelier option — it would be a catastrophe for the French taxpayer, as the company bears all the financial risk until the first kilowatt-hour is generated.

For EDF and nuclear supporters, abandoning Hinkley would mean admitting that nuclear power can’t compete in today’s energy world. There is simply no market for gigantic, centralized power plants at a time when the electricity sector is undergoing a revolution toward decentralized, small-scale, intelligent, hi-tech, horizontally integrated systems. Dropping Hinkley would also signal that there might be no more nuclear construction projects in France, home of Europe’s most ambitious nuclear power program, which generates half of the nuclear electricity in the EU.

Nuclear is losing the race against renewables and increased energy efficiency. In Japan, following the shutdown of its entire nuclear fleet after the 2011 Fukushima disaster, within five years the country was able to substitute 56 percent of the electricity provided by nuclear plants through efficiency gains and renewables.

Even France’s Environment and Energy Management Agency demonstrated that “several electricity generation mixes are technically possible to satisfy demand [in France] during every hour of the year with 80 percent or 100 percent of renewables-based power generation.”

The U.K. is the world’s fourth-largest investor in renewables, spending some €20 billion in 2015. Renewable power output increased by 29 percent in one year, accounting for more than Hinkley’s expected annual generation a decade from now. Renewables now cover a record quarter of the U.K.’s power consumption. Added to that, efficiency gains have cut U.K. power consumption by 6 percent in five years.

Hinkley Point is not needed to keep the lights on in the U.K. It might rather obstruct the indispensable restructuring of the energy industry.

Mycle Schneider is a Paris-based independent international analyst on energy and nuclear policy.

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