At present (October 2019), the proposed 3.2 GW nuclear plant at Hinkley Point C (HPC) in Somerset is in its early construction stages. EDF is pressing ahead, apparently in the hope of persuading politicians not to abandon a partly completed project.
However the HPC project is highly controversial and its completion remains in doubt for political, financial and technical reasons.
- HPC could be cancelled by French/UK Governments
- HPC could be cancelled by EDF
- Severe technical problems exist at the identical nuclear plant under construction at Flamanville in France
- Brexit problems exist in its construction
Apart from the many objections to nuclear power in general (high costs, dangerous nature, radioactive emissions, weapons proliferation, nuclear waste, and poor carbon reduction), additional objections apply specifically to Hinkley Point C.
- Recent large construction cost increases and delays
- Future electricity bills would be increased by an extra ~ £50 billion
- Abandoning HPC would cost taxpayers much less than that
- Construction at HPC is still at an early stage and could be cancelled, and
- Abandoning Hinkley would not leave an energy “gap”
In sum, while it is annoying that money would have been wasted by EDF on HPC, that is no reason to continue with a facility that will cost consumers far more than the cost of abandoning it.
This report concludes that the current Government’s policy of allowing HPC’s construction to continue has more to do with avoiding loss of face than with any technical or financial merits. Instead sound arguments exist for it to be cancelled and the sooner the better.
REASONS TO AXE THE HPC PROJECT
- Recent large increases in construction costs and delays at HPC
In September 2019, EDF announced that the construction cost of Hinkley Point C (HPC) had increased by £1.9-3.6 billion (~ 15%) to £21.5 -23.2 billion. In addition, it would likely be delayed by a further 15 months, as it had been due to be completed in 2025, but may not now be ready until 2027. Writing in The Times, columnist Alistair Osborne called for HPC “to be scuttled”. (1)
In addition, Stephen Fitzpatrick, founder and chief executive of Ovo Energy – the UK’s second-largest electricity supplier – has called for HPC to be scrapped as it is wastefully expensive and out of date. The industry should instead look to the future with ever-cheaper renewable energy.Mr Fitzpatrick would prefer the industry to invest in restructuring the energy network to handle more renewables, including the variable supply of wind and solar. This could be handled in part with a “smart network” using large batteries to handle shifting supply and demand. “If you think about the £39/MWh that was achieved at the last auction for offshore wind, if and when Hinkley Point goes live it is going to be about £100 more per MWh sometime in the late 2020s,” he said. (2)
- Hinkley Point C would cost an estimated £50 billion on future electricity bills
If Hinkley Point C (HPC) were ever completed and allowed to start, and if it worked properly, its electricity bills would commence to be paid by all UK bill payers.
These would be eye-wateringly high. In 2013, the price was stated to be £ 92.50 per MWh. Because this was index-linked, it has now increased to about £110 per MWh in 2019. By the time HPC ever operated in the latter part of the 2020s, the price of its electricity would be about £130 per MWh compared with perhaps £30 per MWh or lower for on-shore wind. And abroad, solar PV supplies are now being bid at ~ £14 per MWh. (3)
These price disparities are startling, but the situation is even worse than this. The convoluted nature of the HPC contract for difference between the Government and EDF/CGN means that if wholesale electricity market prices were to decrease, then electricity bill payers will pay more and vice-versa. So, if wind prices decrease as is highly likely, HPC’s electricity bills would be even higher.
And let’s be clear. Every billpayer in the UK will have to pay this whopping increase, not just EDF customers. Have they agreed to this? Arguably, they have not.
Readers will begin to wonder what on earth is going on. Indeed in 2013, when these extremely favourable terms to EDF were first made public, the reactions of the media and politicians ranged fromincredulity to outrage. See https://www.ianfairlie.org/news/governments-proposed-deal-at-hinkley-c-receives-strong-criticisms-2/
And for a selection of negative media comments in 2015, see https://www.ianfairlie.org/news/21-media-comments-opposing-hinkley-c/.
This media chorus was, and is, unprecedented in its unanimity, breadth, longevity and hostility to the HPC project. That the Government is still pressing ahead with HPC is hard to believe: it amounts to a mockery of our democracy.
How much could bill payers save if HPC were scrapped?
In 2017, the National Audit Office (NAO) assessed the HPC contract. Their report estimated the ‘net present value’ of what it called ‘top-up’ payments by consumers at £30 billion, but this is a discountedfigure: the real costs would be higher. In addition, the NAO concluded that the Government’s deal had “locked consumers into a risky and expensive project with uncertain strategic and economic benefits”. (4)
In 2019, Professor Steve Thomas of the University of Greenwich compared the cost of the 35 year output of Hinkley supplied at £92.5/MWh (in 2012 prices) with the same amount of electricity produced using off-shore wind supplied at recent auction prices of £39.65/MWh. He found the additional cost would be about £50 bn in today’s money. Given that both off-shore and on-shore wind prices would be expected to have fallen further by the time HPC were completed, the savings from abandoning Hinkley would be more than £50 billion. (5)
In addition, once the reactors were started and contaminated with dangerous radionuclides, large decommissioning costs would arise which, if history is a guide, would very likely fall on UK taxpayers.
- Abandoning HPC would likely cost taxpayers relatively little
Two agreements on HPC were signed between the Conservative Government (then DECC) and EDF/CGNin September 2016. (6)One was the 451 page Contract for Difference for future electricity prices.(7) And the other was the 274 page Secretary of State Investors’ Agreement.(8)
These agreements specified that any HPC costs incurred before the September 29 2016 agreement date were the responsibility of those spending the money. If the contracts were cancelled by either side after that date, a complex dispute resolution and compensation adjudication scheme would be triggered.
This is beyond the scope of this report, but if the Government were to axe the project it is doubtful that the compensation payable to EDF/CGN would exceed £6.8 bn – the amount claimed by EDF to have already been spent on the project in its 2018 Reference Document (dated March 2019 see below). This is much less than the £50+ billion extra in electricity bills that HPC would cost compared to electricity from the renewables.
As is customary with the cancellation of large projects, Parliament would need to pass enabling legislation for the payment of financial compensation to EDF (Energy).
The two agreements specify what would occur if HPC were abandoned after its completion. Then EDF/CGN would be paid compensation for the income lost from its anticipated electricity sales. The amount of compensation would depend on how long the contract still had to run after its cancellation.
In 2017, the NAO stated it had been suggested to them that this compensation could be as much as £22 bn if the plant were closed when already in service. However this figure could have been a “frightener”, as it depends entirely on when the contract was cancelled and probably equates to the compensation payable if the plant were abandoned in its first years of operation. And it has to be acknowledged that the circulation of disingenuous information is hardly unknown in the nuclear industry. (9)
Because of the absence of publicly available details of any penalty clauses from cancellation, precise savings are difficult to estimate. Even the NAO did not get far when it tried to address this question in 2016 (10)
- Construction at Hinkley C is still at an early stage and could be cancelled
Conventionally the start of construction and the point at which cancellation starts to become expensive is the pouring of the first structural concrete of the reactors. This occurred in December 2018 when EDF started to pour concrete for the base of the first reactor. Up to then, EDF’s Reference Document 2018 (p 65) stated that the cost of HPC to date (March 2019) was £6.8bn. However it is difficult to assess whether this estimate is accurate or not.(11)
Steve Thomas, emeritus Professor of energy policy, also points out that money already spent on these mega-projects is irrelevant to decision-making on their future. Instead the relevant issues are whether the remaining costs can be recovered and whether estimates of the remaining costs are reliable. The money spent cannot be recovered and, unfortunate as this waste of money would be, it has to be written off if carrying on would mean throwing good money after bad. He continued “It is not clear how much EDF has spent to date [October 2019] but given that construction on the first reactor base started in December 2018, it can only be a fraction of the total cost and a small fraction of the £50 bn that Hinkley would add to consumer bills over its lifetime.”(12)
- Abandoning Hinkley would not leave an “energy gap”
Past forecasts of so-called “energy gaps” have tended to be unreliable. They have had more to do with selling newspapers with scare headlines than presenting considered analyses of our electricity needs.
In fact, electricity demand has been falling in recent decades. For example, in 2010, the coalition Government’s energy plans were based on a doubling (or possibly a tripling) of electricity consumption by 2050. In reality, electricity demand decreased by 16% in the past 15 years. (13)
Nowadays, primary energy demand is expected to continue falling by a further 11% by 2025. By 2030, Government forecasters expect consumption to be 2% more than today. (14)
Some forecasters have predicted that it would be necessary to electrify heating and transport sectors for climate warming reasons. This could possibly lead to the need to triple electricity generating capacity in future. (15)
This matter is at an early stage of debate. One point is that even if it were accepted that electricity generating capacity had to increase in future, there is no reason why this should include nuclear capacity. Some observers have predicted that the UK could supply 100% of its electricity from the renewables: already Scotland obtains more than 70% of its electricity from the renewables without difficulty. (16)
And conservation and efficiency are equally as important as new capacity. For example, Andrew Warren, chairman of the British Energy Efficiency Federation, states that the energy efficiency measures systematically removed by the Conservative Government in recent years could easily prevent any projected increases. (17) And the UK Energy Research Centre says energy efficient improvements to home heating, insulation, lighting and appliances could reduce the energy consumed in UK households by a quarter and knock £270 off the average household energy bill of £1,100 – a savings equivalent to the output of six nuclear power stations the size of Hinkley Point C. (18)
Hinkley Point C is not expected to start generating electricity until 2025-7, assuming no further delays occur. This would be up to 7 years’ longer than many efficiency and renewable projects.
Some efficiency projects can actually be implemented in months, for example the installation of replacement LED lighting in homes. Utility-scale solar or wind schemes can take as little as 12 months to begin commercial operations. Why is this important? Because HPC is effectively emitting 64g -102g of CO2 per kilowatt-hour of plant capacity just from grid emissions during the wait for the project to come online, compared to efficiency or wind and solar farms. (19)
Another example is that an accelerated programme to replace all the light bulbs and lamps in the UK with LEDs would cut peak electricity demand by about 8 GW – about 3 times HPC’s capacity. Even a restricted national campaign just on domestic homes would power have a dramatic impact: changing the lights in kitchen and living areas would reduce peak electricity demand by 2.7GW –ie about the net capacity of HPC. (20)
The wind industry says if the Government’s current restriction on onshore wind farms were lifted, it would allow the construction of 794 wind projects which have already won consent through the planning system and are ready to build.(21)
Within months, they could provide 1.2 GW capacity – about half of HPC’s net capacity. The Government’s own figures show on-shore wind farms are the cheapest source of new electricity generation. (22) The trade body, Renewable UK, says a boom in new on-shore wind projects could also cut average energy bills by £50 a year, compared with a system reliant on gas. (23)
POLITICAL, FINANCIAL AND TECHNICAL PROBLEMS FACING HPC
- Both the UK and French Governments have questioned HPC’s viability.
On October 1 this year, following a spate of increases in the budgeted costs at HPC and at similar reactors under construction at Flamanville in France and Olkiluoto in Finland, the French Finance Minister, Bruno Le Maire, accused EDF of unacceptable failings and delays and threatened major reforms which would affect every level of EDF. (24) In addition, an independent audit is to be conducted on the choice of the EPR, whose conclusions will be delivered to the Finance Minister on October 31. (25) Also President Macron has requested EDF to restructure itself by hiving off its nuclear part which would remain in state hands and selling off its profitable non nuclear activities.(26)
As for the UK, several expert studies have seriously questioned HPC’s viability. For example, in 2017, Cambridge Public Policy experts in energy policy debated whether or not the HPC contracts were“fit for purpose”. (27)
In addition, many political concerns have been voiced in the UK, at least in the past, at the Chinese Government’s 33.5% involvement in the HPC project. It is worrying, for example, that the Chinese Government makes no distinction between its civil and military nuclear policies.
This assumes of course that the Chinese Government is still interested. In 2017, an influential commentator stated “It is not clear China wants to go ahead; [they] increasingly realise that the Hinkley design is a dead end, as costs escalate and delays grow.” (28) This disinterest may have arisen partly due to the Chinese Government’s slowdown in nuclear construction in China itself. (29)
- HPC could be cancelled by Électricité de France which is in financial difficulties
The parent of the UK company EDF (Energy) is Électricité de France which is in precarious financial straits with massive debts: it only continues to exist due to its support by the French Government, as it is too big to fail.
Électricité de France is currently 84% owned by the French Government, but in mid-2019 the French President announced that he is considering nationalising the remaining 16% of EDF, apparently in order to protect French banks from further falls in EDF’s share price. (30)
Électricité de France’s debts and future liabilities are very large as set out below https://www.ft.com/content/c63ebe88-bcde-11e9-89e2-41e555e96722
- Current debt €37 billion
- Needed for HPC €22 billion (estimate)
- Needed for Flamanville €4 billion (estimate)
- Needed to refurbish old French reactors €100 billion
- Needed to decomm the rest and dispose spent fuel €75 billion
Total = €238 billion + unknown € billion debts from AREVA (now Framatome)
HPC’s construction costs are placing financial strains on Électricité de France. In 2016, internal tensions within EDF over HPC led to the resignations of its Environmental Director Gérard Magnin (31) and its Finance Director Thomas Piquemal. (32)
The £21.5 – £23.2bn construction cost of the project is what is known as the “overnight” cost, ie the notional cost if HPC were built overnight. But, of course, this is impossible so EDF Energy will need to borrow money whilst the reactors are being built which means they will have to pay interest during construction. So far it appears that EDF Energy has borrowed little money yet. New borrowing could add as much as 50% to the overnight cost, which could bring the total cost to EDF up to around £34 bn and EDF ‘s share to £22bn. Can EDF bear these added finance costs?
As EDF (Energy)’s costs at HPC continue to rise while the price it would be paid for its power remains fixed in real terms, the profitability of HPC is falling and at some point, perhaps not far off, it may well become in EDF(Energy)’s interests to abandon the project.
Although cancellation losses would be incurred by EDF (Energy), these would be offset by the ~£16 bn saved from not proceeding. In addition, EDF(Energy) would save the opportunity costs of the nuclear programme – ie what less expensive options EDF is missing because of its choice of nuclear powe. It is very likely that the much cheaper renewables would be a more cost-effective and quicker way of making profits for EDF (Energy) than persisting with HPC.
3.Technical problems at Flamanville
Other EPRs identical to those planned for HPC are under construction in Finland and France and they are suffering technical problems with consequent long delays and budgets spiralling out of control.
For example, in 2015, the French nuclear regulator, Autorité de Sûreté Nucléaire (ASN), announced “very serious” faults in the reactor pressure vessel domes of the reactors made by former French nuclear company Areva (now Framatome and under EDF control) at Le Creusot in France were faulty and would need to be recast.
Later, Areva announced that it would perform both destructive and non-destructive tests on one of the Reactor Pressure Vessels allocated to Hinkley. It is unknown whether a replacement is to be manufactured. (33)
Similarly, French nuclear inspectors at ASN and IRSN also warned EdF about multiple faults in crucial safety valves in the Flamanville nuclear reactor. (34) Also more recently, more than 50 serious welding faults were discovered, eight of which can only be repaired using as yet using unproven robotic technology. (35)
These technical problems at Flamanville do not augur well for its sister plant at HPC.
- Brexit problems for nuclear construction
EDF (Energy) has raised the spectre of delays or cost overruns to the Hinkley Point C plant as a result of Brexit, warning that any restrictions to trade and movement of labour could hamper the delivery of energy projects. The French state-controlled company said Britain would have to import goods and skilled labour from around the world in order to make the “very substantial investments in new infrastructure” needed to keep the lights on. “There is a risk that restrictions on trade and movement of labour will increase the costs of essential new infrastructure developments and could delay their delivery,” it said in a submission to MPs on the business, energy and industrial strategy select committee.
Although EDF did not mention Hinkley Point C, this is the only nuclear plant it is constructing. EDF added that Britain’s import requirements would include “critical goods and services in the nuclear supply chain and specialist nuclear skills”. (37)
Clearly HPC faces an uncertain future: it could be cancelled at any time by any of the contractors to the HPC agreements, and by the UK or French Governments.
The main reason why it continues would appear to be to avoid embarrassment were it to be abandoned. Loss of face is hardly a sound rationale on which to base part of the UK’s energy policy. Sadly, this would appear to be the case as regards HPC.
If HPC were to be axed it would save all electricity consumers more than £50 bn over the 35 years of its mooted life. These savings could be spent on energy efficiency techniques which are readily available and which could save householders around a quarter of their energy bills.
There need not be concerns about the lights going out as a result of abandoning this project. An accelerated programme simply to replace all lights in the UK with LEDs could cut peak electricity demand by about 8GW – two and a half times what HPC would provide. On-shore wind projects already with planning permission could quickly be constructed to provide half the annual electricity output expected from HPC.
While it is annoying that money would have been wasted by EDF, that is no reason to go ahead with a facility that will cost consumers far more than the cost of abandoning it.
In sum, this report shows that the current Government’s policy of allowing HPC’s construction to continue is purely political with little practical, technical or financial merit. Sound arguments exist for it to be cancelled and the sooner the better.
- Times 26th Sept 2019 https://www.thetimes.co.uk/article/50b3a652-dfd3-11e9-9f61-dcefea5f5359
- Telegraph 28th Sept 2019https://www.telegraph.co.uk/business/2019/09/28/scrap-hinkley-point-nuclear-plant-expensive-date-says-ovo-energy/amp/
- Institute for Energy Economics and Financial Analysis, 10th October 2019 http://ieefa.org/solar-prices-fall-to-new-record-low-in-saudi-led-bid-for-900mw-dubai-project/
- Investigation into the 2017 auction for low?carbon electricity generation contracts National Audit Office, 16th May 2018 https://www.nao.org.uk/wp-content/uploads/2018/05/Investigation-into-the-2017-auction-for-low-carbon-electricity-generation-contracts.pdf
- For similar calculations he did in 2017 see Time to Cancel Hinkley? By Professor Steve Thomas, September 2017 http://www.no2nuclearpower.org.uk/wp/wp-content/uploads/2017/09/Time-to-Cancel-HinkleyFinal.pdf
- BBC 29th Sept 2016 https://www.bbc.co.uk/news/business-37502547
- Contract for Difference for Hinkley Point C. September 2016 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/556763/1_-_Contract_for_Difference__redacted_.pdf
- Secretary of State Investor Agreement september 2016 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/556765/2_-_Secretary_of_State_Investor_Agreement__redacted_.pdf
- Hinkley Point C, National Audit Office, 23rdJune 2017 https://www.nao.org.uk/wp-content/uploads/2017/06/Hinkley-Point-C.pdf
- Guardian 13th July 2016https://www.theguardian.com/uk-news/2016/jul/13/hinkley-point-c-cost-30bn-top-up-payments-nao-report
- Reference Document 2018, including the Annual Financial report, EDF https://www.edf.fr/sites/default/files/contrib/groupe-edf/espaces-dedies/espace-finance-en/financial-information/regulated-information/reference-document/edf-ddr-2018-en.pdf
- pers com
- Business Green 23rd April 219 https://www.businessgreen.com/bg/opinion/3074428/the-sad-and-under-reported-tale-of-uk-energy-efficiency-gains-and-neglect
- Don’t let these energy use predictions come true”, Andrew Warren Energy in Buildings and Industry June 2019.
- see for example Large Scale Investment in renewables, Labour’s Green New Deal September 2019 https://static1.squarespace.com/static/5c742a3c77b9036ccae1eddf/t/5d721c4c77a52f000186f9d6/1567759439864/3+Large-scale+investment+in+renewables.pdf
- See Renewables in Numbers, Scottish Renewables website accessed 19th Oct 2019 https://www.scottishrenewables.com/forums/renewables-in-numbers/
- Don’t let these energy use predictions come true”, Andrew Warren Energy in Buildings and Industry June 2019.
- UK Energy Research Centre 6th September 2017 http://www.ukerc.ac.uk/news/unlocking-britains-first-fuel.html
- Evaluation of Nuclear Power as a Proposed Solution to Global Warming, Air Pollution, and Energy Security by Mark Z Jacobson May 2019 https://web.stanford.edu/group/efmh/jacobson/Articles/I/NuclearVsWWS.pdf and PV Magazine 18th April 2019 https://www.pv-magazine.com/2019/04/18/there-is-no-such-thing-as-a-zero-or-near-zero-emissionnuclear-power-plant/
- Goodall, C The urgent case for a mass switch to LED lighting, Ecologist 8th June 2016 http://www.theecologist.org/blogs_and_comments/commentators/2987760/the_urgent_case_for_an_mass_switch_to_led_lighting.html
- Guardian 18th January 2019 https://www.theguardian.com/environment/2019/jan/18/windfarm-industry-urges-uk-to-lift-onshore-subsidies-ban
- See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/566567/BEIS_Electricity_Generation_Cost_Report.pdf
- Guardian 12th June 2019 https://www.theguardian.com/environment/2019/jun/12/onshore-wind-farms-in-uk-could-cut-50-a-year-off-energy-bills
- Times 30th September 2019 https://www.thetimes.co.uk/article/2a8ccefa-e2e8-11e9-bc3e-661ff0438ed9
- Le Monde 29th September 2019 https://www.lemonde.fr/economie/article/2019/09/29/pour-bruno-le-maire-les-derives-de-la-filiere-nucleaire-sont-inacceptables_6013530_3234.html
- Reuters 4th Oct 2019 https://www.reuters.com/article/us-edf-restructuring-delay/edf-restructuring-plan-delayed-by-a-few-months-at-least-ceo-letter-idUSKBN1WJ1TT
- Centre for Business Resolution, 2017. https://soundcloud.com/cambridgejbs/hinkley-point-c-revisited-david-lowry-and-dr-andrew-blowers?in=cambridgejbs/sets/hinkley-point-c-revisited
- Ridley, M. Britain’s energy policy keeps picking losers, Times 31st July 2017 https://www.thetimes.co.uk/edition/comment/britain-s-energy-policy-keeps-picking-losers-v2ctn5pcb
- See Kidd, S. Nuclear in China – why the slowdown? Nuclear Engineering International 10th August 2017 http://www.neimagazine.com/opinion/opinionnuclear-in-china-why-the-slowdown-5896525/
- Bloomberg 13th Feb 2019 https://www.bloomberg.com/news/articles/2019-02-13/france-is-said-to-mull-edf-de-listing-amid-nuclear-challenges
- Guardian 28th July 2016 https://www.theguardian.com/uk-news/2016/jul/28/resignation-edf-director-hinkley-point-gerard-magnin
- FT 7th March 2016 https://www.ft.com/content/ef9d4de8-e3e9-11e5-ac45-5c039e797d1c
- Letter from ASN 3rd April 2015 http://www.onr.org.uk/foi/2016/201603215.pdf
- Telegraph 9th June 2015 https://www.telegraph.co.uk/news/worldnews/europe/france/11662889/Faulty-valves-in-new-generation-EPR-nuclear-reactor-pose-meltdown-risk-inspectors-warn.html
- Montel News 17th May 2019 https://www.montelnews.com/en/story/edf-must-repair-welds-or-reinforce-new-reactor–asn-/1010344
- Forston, D. New threat to Hinkley power plant cash, Sunday Times 31st January 2016 https://www.thetimes.co.uk/article/new-threat-to-hinkley-nuclear-plant-cash-gzntmz5jlln
- Times 24th Jan 2017 http://www.thetimes.co.uk/edition/business/brexit-risks-pushing-up-hinkley-cost-edf-warns-fg9pkrbfq
 Recent studies indicate that nuclear CO2 emissions are 10 to 18 times greater than those from renewables. https://web.stanford.edu/group/efmh/jacobson/Articles/I/ReviewSolGW09.pdf
 For the avoidance of doubt one billion means one thousand million, ie 1,000,000,000.
The NAO report does not give an undiscounted figure to compare with other estimates. Discounting is based on the premise that income next year is worth less than income this year because income earned now can be invested to earn a return. Without knowing the costs NAO has assumed on a year-by-year basis it is not possible to compare their figure with other estimates.
 CGN is the China General Nuclear Power Group
 Originally called European Pressurised Reactor, now the internationalised name is Evolutionary Power Reactor
The 2018 Reference Document of EDF (Energy) shows that interest charges were only €108 million, ie its borrowing has been small so far.