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The folly of Hinkley

New nuclear energy is central to the government’s plan for reducing carbon emissions, but Hinkley Point C is an expensive gamble—especially for the customers

British electricity customers will soon find out whether they will be saddled with paying for the world’s most expensive power station, Hinkley Point C. The first new nuclear station to be built in the UK for 21 years, Hinkley is the centrepiece of the government’s plan to cut carbon emissions and reduce British dependence on imported gas. In order to persuade French and Chinese investors to commit £18bn for this project the government, having repeatedly stated there would be no subsidy for nuclear energy, has promised that British electricity customers will pay for all the power the station produces at a price of £92.50/MWh (megawatt hour)—more than double the current market price of £35/ MWh—for 35 years after the station is completed, and indexed to inflation (the price includes £2/MWh for decommissioning). On top of that, the government will guarantee (for a fee) that lenders to the project bear no risk. And it has undertaken that no future government can pass any law or policy that would hurt the investors, on pain of compensation.

There is no British nuclear company involved in the project because we have not had a British nuclear reactor design for 40 years. The project, if it goes ahead, will be a combination of French and German technology, funded by French and Chinese government-owned companies. The only role of the British will be to pay for the power it produces.

There is a case for building new nuclear power stations in the UK, as the existing ones are nearly all scheduled to close within 15 years and it’s hard to see how we can meet the decarbonisation targets set in law by the 2008 Climate Change Act without new ones. But Hinkley is an unacceptably costly way of doing so. There are other nuclear projects in the pipeline and, while little is certain in the world of nuclear economics, there is good reason to think that the other stations will be considerably cheaper. Hinkley’s costs have risen dramatically as the new European Pressurised Reactor (EPR), the type of pressurised water reactor planned for Hinkley, has been revealed as all but unbuildable. The project sponsor, the French electricity company EDF, is now desperately short of cash and can ill afford the risk of this enormous project. What was supposed to be a privately funded project has turned into a threeway government deal. Yet we are stuck with high private sector returns which inflate the cost. The British government should cancel this project in the interests of protecting customers. But it fears that it would jeopardise the rest of the nuclear programme as well as break an agreement with the UK’s new best friend, China. So we are reduced to hoping that the French government, which is EDF’s major shareholder, will decide to scrap the project.

The problem is that the UK, for quite noble reasons, is committed to new nuclear stations as a crucial part of cutting the country’s carbon emissions. The government hoped that this could be done with private sector capital though EDF and the other nuclear developers all have actual or de facto state support. The first of these new stations, Hinkley Point C, uses a reactor type that has not yet been built on time or budget anywhere in the world. The hugely escalating costs have made a nonsense of leaving it to market forces, as EDF, financially weakened by falling prices in its French home market, now needs the British government to guarantee the project’s debts and to provide a 35-year price contract to make the investment worthwhile. Even then EDF cannot go it alone and has had to ask its Chinese partner, increasingly looking like a rival, to help fund the project. The British government dare not stop the project for fear of jeopardising the other nuclear projects in the pipeline, which offer the hope of lower costs. Without a lot of new nuclear capacity to replace the older stations, which will close by 2030, the government looks set to breach its own legally binding carbon emission reduction targets. So it is only the French government—the owner of EDF and also the promoter of the formerly very successful French nuclear industry—which might save us from Hinkley’s costs.

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In Prospect’s May issue: Simon Taylor and Bronwen Maddox on why Hinkley Point C is an expensive gamble that might not pay off. Philip Collins examines Iain Duncan Smith’s tenure as Secretary of State for Work and Pensions, and Lionel Shriver reveals why she stopped fighting being female. Alan Rusbridger responds to last month’s piece on the Guardian by Stephen Glover. Also in this issue: Nicholas Soames says there’s no such thing as "Project Fear” and Howard Davies reviews Melvyn King’s new book and suggests that we are vulnerable to another financial crisis. Plus Ruth Dudley Edwards examines the fading myths of the Easter Rising and Owen Hatherley suggests it’s time to look for a Plan B to solve London’s housing issues.