27 October 2015

Montel (Norway): UK’s Hinkley “could be EDF’s Waterloo” – expert

UK’s Hinkley “could be EDF’s Waterloo” – expert

Montel, 23 October 2015

The controversial plan to build new nuclear reactors at Hinkley Point in south-west England could still be thwarted despite deals announced this week between the UK government, French utility EDF and Chinese investors, experts told Montel.

The project could even turn into “EDF’s Waterloo, exactly two hundred years after Napoleon’s defeat”, said Mycle Schneider, independent nuclear and energy policy analyst.

“They’ve [EDF and the Chinese] announced it as a fantastic done deal but the cracks are still there,” said Steve Thomas, professor of energy policy at the University of Greenwich Business School.

“There’s quite a lot of risk left in the project. I think a final investment decision is some distance away,” said Tony Roulstone, lecturer in nuclear energy at UK’s Cambridge University.

It is “increasingly difficult” for the UK and EDF to admit that “this project is outdated before it even starts”, Schneider added.

“Sword of Damocles”

“A Damocles sword is hanging over the European pressurised reactor [EPR], with the vessel material faults identified at Flamanville in France that equally hit the two Taishan units under construction in China,” he added.

Announcing an investment deal with Chinese state-owed nuclear firm CGN on Wednesday, EDF CEO Jean Bernard Levy said a final investment decision on the plan to build two 1.6 GW reactors at Hinkley was only “weeks away.”

Yet the firm “has been saying a final agreement is only months away for five years… EDF doesn’t have the money to go ahead at the moment”, Thomas said, pointing to the utility’s recent announcement it plans asset sales of EUR 10bn to help fund the GBP 18bn it now estimates the Hinkley project will cost to build.

“It doesn’t have EUR 10bn worth of assets to sell,” he added.

“This is less than the 40% stake that EDF wanted the Chinese to take,” said Roulstone, referring to the 33.5% stake agreed by CGN.

However, with results of tests on the Flamanville EPR vessel not due until the end of 2016, it was “hard to believe that any investor will make binding commitments until the final [test] results are out”, said Schneider, with reference to the issues facing the new EPR design, with the Flamanville project in France hit by delays and cost overruns.

“In the meantime, EDF is getting deeper and deeper into costly commitments putting the entire company at risk rather than pulling the plug on what has most obviously become an excessively costly adventure,” he added.

“There’s a level of risk. They [EDF] can decide they can cover it now or wait until there is more certainty [over the Flamanville EPR build]. That is the internal debate going on at EDF,” said Roulstone.

Construction to begin?

Other disagree, arguing with the Chinese deal sealed there is now no doubt the Hinkley project will go ahead.

“We could see construction begin early next year,” said Peter Atherton, analyst at Jefferies bank.

“The EPR is proving a very difficult technology to build that is why the Hinkley budget is so very high and the timeframe so long,” he added.

The will have no trouble signing up other investors once building starts and the construction risks begin to wane, Atherton added.

EDF now aims to start-up the unit 10 years from now in 2025, though the project has been beset with delays since it was first mooted in 2012 and the reactors were originally due to come online in 2017.

In 2013, it put the project’s start-up back to 2023, though fears persisted it would never be built.

The UK government eventually stepped in and said it would guarantee a loan to finance the plan and pay a fixed minimum price – a “strike price” of GBP 92.50/MWh – for the electricity it generates for 35 years, twice the market rate.

Earlier this year, the European Commission ruled in favour of the project after a state-aid probe.

However, legal challenges against that decision by Austria and Luxembourg, as well as a group of German and Austrian municipal utilities, could further delay the plans, opponents said.