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UK Government’s Nuclear Plans – Will they work?

scrutiny-on-costsflag-UKNU CLearNews Dec 15 Last month we asked why the Government is persevering with the world’s most expensive power plant ever at the same time slashing support for renewable energy. (1) Renewable energy is going from strength to strength. Solar photovoltaics could provide the same amount of electricity as Hinkley Point C for half the subsidy cost (2) and we could have six times the power-generation capacity for the same money by investing in wind turbines instead of Hinkley. (3) Although the Government’s motivation is still a bit of a mystery – either it thinks we still need baseload; it wants to sustain a national nuclear industrial capability sufficient to maintain the UK’s nuclear-armed status; or it is prepared to pay over the odds to the nuclear industry to avoid democratising the energy industry.

 This month we want to look at how likely the whole nuclear adventure is to go ahead. For all the claims that EDF’s ‘final investment decision’ on Hinkley Point C is a mere formality that will be made in a few weeks, there is more reason than ever to doubt it will go ahead anytime soon. As we pointed out last month the whole deal looks as though it’s stitched together with paperclips and sellotape and could fall apart at any moment.
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. (4) What this means, according to The Ecologist, is that there is now a near-zero chance of these guarantees ever actually being taken up. Under the terms of the European Commission’s decision on Hinkley, the UK Government may only be able to guarantee loans. It may not be able to underwrite equity – or capital put into the project by the shareholders. Osborne’s £2 billion promise in Beijing doesn’t appear to be able to go ahead under the terms of the EC decision.

The original idea for financing Hinkley was for the promoters to put in £7.5bn in equity and then to borrow £17.5bn supported by UK Government Credit Guarantees (for which a premium would be paid). This was made up of £16bn cost plus £8.5bn interest. Now the price 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.” (5) So the Chinese will be putting in about £6bn, which means EDF has to find £12bn.
If EDF has to find all of the £12bn, it could do this partly by selling additional equity in the project, and this is certainly possible, but it has already been tried, and the Chinese have been the only takers, and they are taking less than EDF wanted them to. Alternatively EDF could flog off its assets. And that’s exactly what it is doing – seeking to raise €10 billion by selling its Italian subsidiary Edison and its share in US nuclear company CEGN, and possibly a Polish coal mine, as reported in the FT. But that will still leave it many billions of pounds short. (6)
As well as raising the £12bn for Hinkley Point C, EDF is preparing for a large outlay on the reactor division of French nuclear group Areva as part of a deal negotiated alongside the government to save its rival earlier this year. It has agreed in principle to buy between 51 and 75% of Areva NP, which will cost between €1.3bn and €2bn. It faces a €55bn bill over the next ten years to upgrade its reactors to extend their lives. Flamanville’s problems cost EDF an unscheduled €2 billion last year. And then there is the potentially enormous cost that EDF faces going forward in decommissioning its ageing fleet of nuclear power plants in France, the UK and other countries – just as its revenue stream from those reactors is cut off.
The company could take on more corporate debt, but it is already carrying far too much. Of course it may try to borrow much of the money after a few years into the project – backed by the Government Credit Guarantee, There probably isn’t any reason for substantial spend before 2018/19. If completion is 2025, that implies first concrete in 2020 and long lead-time items (reactor vessel, steam generators, turbine generators might need to be ordered a year ahead, so no big spending until 2019.
So there is a very real possibility that EDF will be unable to raise the cash to proceed with Hinkley C. If it does, the project could spell doom for EDF as a company according to the association of employee-shareholders. (7) Investment bank Investec, Moody’s and Standard and Poor have all advised clients to sell shares in EDF. (8)
If EDF does manage to get Hinkley off the ground the prospects for Sizewell C look minimal. But if Hinkley does collapse but it won’t necessarily take Wylfa, Oldbury and Moorside with it. The Government could just blame the EPR and EDF. References: …….

December 4, 2015 - Posted by | business and costs, politics, UK

1 Comment »

  1. ☢ MONEY is the King of the UK

    Especially for all those seeking Nuclear Payback*


    Those that support nuclear power because nuclear power somehow supports them; no matter what the health implications or other “costs” are for others.

    Comment by CaptD | December 8, 2015 | Reply

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