Confusion about financing of UK’s Hinkley nuclear power project

nuClear News, No 82 Feb 2016, Hinkley’s Troubles Continue ……..The original idea for financing Hinkley was for the promoters to put in £7.5bn in equity and then to borrow £17bn supported by UK Government Credit Guarantees (for which a premium would be paid). This £24.5bn total was made up of £16bn cost plus £8.5bn interest. Now the cost seems to have gone up to £18bn (or adjusted for today’s prices). But EDF Energy seems to be talking about largely funding this out of equity. EDF said on 21st October: “The project is due to be equity funded by each partner, at least during a first stage.” (19) Of course, there is no indication given by EDF of how long the “first stage” would last. However The Telegraph reported that EDF had originally been expected to use project financing for Hinkley, backed up by up to £16bn in UK Government guarantees via Infrastructure UK. But Mr Lévy announced in October a “radical change” to what he said was a “more efficient” option of delivering its £12bn share of the project from EDF’s own balance sheet. (20)

Under the deal agreed with the European Commission, the Flamanville EPR project must be up and running before the guarantees come into effect. And until that time, the shareholders must provide billions in ‘contingent equity’ to cover the bondholders’ risk, protecting UK taxpayers. And if it is not operating by 2020 the guarantees will expire. (21) What this means, according to The Ecologist, is that there is now a near-zero chance of these guarantees ever actually being taken up. This could be why EDF is now talking about funding the whole project through equity.

The Sunday Times reported that when the European Union signed off on the Treasury’s guarantee of Hinkley Point, it insisted it be conditional on Flamanville having “completed the trial operation period” and other operational milestones by December 2020. If Flamanville misses that deadline, EDF would be forced to immediately repay any loans that benefited from government support. (22) The date of earliest completion of the Flamanville reactor is 2018, and even that assumes that things go a lot better than they have so far.

Dr Dave Toke says there is no chance of Hinkley C being funded without the Government guarantees – EDF haven’t got anywhere near the money needed and it would be financially crazy to pay for it without the guarantees – so EDF cannot take the chance of going ahead without a firm loan guarantee. (23)

It is no surprise that employees and shareholders of EDF are up in arms about the prospect of a ‘final investment decision’ being taken by the EDF Board. This leaves people wondering about the motives of EDF in announcing that they are ‘restarting’ work on Hinkley C. EDF seems to want to carry on despite the increasing likelihood that the Hinkley project will destroy EDF as a going business. So why do they carry on with this apparent financial suicide? The answer according to Toke is that the leaders of EDF have two choices: abandon Hinkley C and effectively end EDF’s visions as being leaders of a world (or even French) nuclear resurgence or carry on spending money on Hinkley C and hope that the French Government will bail them out of any further difficulties. The first choice involves the certainty of loss of face and resignation, but the second choice involves a probability of disaster (and eventual resignation), but the faint hope that they still might win out. (24)

So EDF has told contractors at Hinkley Point to restart “unconstrained spending” in anticipation of the £18bn nuclear plant obtaining the final green light soon. By ‘unconstrained’ they mean ‘we’re going to go on as if a decision has been made’.” (25)

Sizewell A final investment decision on Hinkley is expected to trigger the launch of the next round of public consultation over plans for Sizewell C. (26) But if EDF is struggling to find its 66.5% share of Hinkley C, how will it ever find the 80% it is expected to put into Sizewell C? References ……http://www.no2nuclearpower.org.uk/nuclearnews/NuClearNewsNo82.pdf