LONDON – 15 September 2016 – "After surprising all parties with a review of the deal in July, the UK government has now given the go ahead for a new nuclear plant at Hinkley. The decision is key to the renewal of the UK's power infrastructure. When completed, it will supply 7% of the UK's electricity, vital given the closure of all the UK's coal plants by 2025 and the closure of nuclear plants in the 2020s and 2030s.
However, the length of time it will take to come online is a key issue, given the capacity gap that is looming in the UK. This approval does not mean the immediate start to construction and further delays are almost inevitable. Comparable nuclear projects in France and Finland have had massive cost and time overruns. Finland's Olkiluoto is now running 9 years late and will take 15 years in total to construct. On this basis, even if Hinkley is started now it will not be online until the 2030s.
One ongoing contentious issue is the likely cost of the project, projections for which have continued to rise, which means that UK taxpayers are in effect subsidising a project that assumes energy costs will be more than double what they are now once operational. The recent decline in wholesale gas costs, coupled with the continued decline in renewables, particularly solar, has made new nuclear projects harder to justify. Fortunately, the length of time this project will take to construct means that many of the decision makers will be in political retirement before the full impact is felt.
Both the French and the UK government have reasons to be relieved. The UK government is desperate to show that investment can continue to flourish in a post-Brexit UK and wants to be seen acting to secure the UK's energy future, as well as providing the skilled jobs that this project will create. The approval also means that a potential clash with the Chinese government can be avoided, although the announcement of proposed reforms on foreign ownership of assets of national security could cause future problems. For the French government, it is keen to support its nuclear industry after a number of contract losses in other regions of the world.
What this approval should do though is encourage others to act. This project is the canary in the mine of the nuclear world: if EDF is moving ahead it will encourage other consortiums that have been holding back to start moving their own plans forward. We could see a real acceleration of investment decisions after so much delay. Hitachi and Toshiba are both leading consortiums that are looking to build new plants. The Chinese are also keen to construct new plants in Sizewell in Suffolk and Bradwell in Essex – the question is will the government let them?"
To find out more on this topic, or to schedule an interview with our experts, please contact Anna Zanchi, Corporate Communications, at anna.zanchi@frost.com
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