Hinkley Point, on the Somerset coast, is the biggest building site in Europe, 430 acres. The first new nuclear power station in the UK since 1995 is slowly taking shape. When it is finally completed, Hinkley Point C will be the most expensive power station in the world. EDF had admitted it was at least £1.5bn over budget, and that the project could be completed 15 months behind schedule.
Some critics of the project have questioned whether Hinkley Point C’s nuclear reactor will even work. It is a new and controversial design, which has been dogged by construction problems and has yet to start functioning anywhere in the world. Some experts believe it could actually prove impossible to build. “It’s three times over cost and three times over time where it’s been built in Finland and France,” says Paul Dorfman, from the UCL Energy Institute. “This is a failed and failing reactor.”
At present, the estimated total bill for Hinkley Point C is £20.3bn, more than twice the London Olympics. To pay for it, the British government has entered into a complex financial agreement with Électricité de France (EDF), the energy giant that is 83% owned by the French government, and China General Nuclear Power Group (CGN), a state-run Chinese energy company. Under this contract, British electricity consumers will pay billions over a 35-year period. According to Gérard Magnin, a former EDF director, the French company sees Hinkley as “a way to make the British fund the renaissance of nuclear in France”. He added: “We cannot be sure that in 2060 or 2065, British pensioners, who are currently at school, will not still be paying for the advancement of the nuclear industry in France.” He said “It is the construction of a house of cards.”
Observers agree that the deal is ludicrously favourable to EDF – “a dreadful deal, laughable” says Prof Steve Thomas, who works on energy policy at the University of Greenwich.
Nuclear power is facing existential problems around the world, as the cost of renewable energies fall and their popularity grows. “The maths doesn’t work,” says Tom Burke, former environmental policy adviser to BP and visiting professor at both Imperial and University Colleges. “Nuclear simply doesn’t make sense any more.”
Thatcher’s government launched plans to privatise the entire electricity market. But in the months following this announcement, it became clear that selling off Britain’s three dozen nuclear units was going to pose a problem. A former civil servant closely involved with the privatisation remembered the shock of discovering the sheer scale of the risks and costs associated with the creaking first generation of nuclear plants. Whereas government policy papers could massage figures and make optimistic projections, the prospectus, which provided financial information for potential investors, could not bend the truth. “A government paper was one thing,” said the former civil servant, “but if the figures were misleading in the prospectus, it was a criminal offence. That was not at all like a government paper, to be honest"
It was clear that Britain’s nuclear sector would not be privatised – companies had little desire to take on the immense financial and practical risks. “The decommissioning costs are unbelievable,” the former energy secretary Chris Huhne explained. “In the 50s and 60s, they built them as if they were the pharaohs building the pyramids. It was: ‘We’re never going to have to take them apart.’” In 1990, as the privatisation of the electricity market went ahead, Britain’s nuclear power stations moved into a state-owned company. By then, the government was already deep into the construction of Sizewell B nuclear power station, on the Suffolk coastline. Hinkley Point C was next on the list. Six years later, the older generation of nuclear power stations were transferred into another state-owned company, while a new private company called British Energy stepped forward to take over the eight most modern nuclear power plants in the UK. As British Energy took over its ready-built assets, it announced it would let the planning consent for Hinkley Point C lapse. Taking over existing nuclear power stations made financial sense; taking on the eyewatering costs of building new ones did not. The current nuclear power stations would run until the end of their projected lifespans, and then something else would have to close the gap. British Energy began to run into financial problems. By 2002, the new private company was in chaos, ultimately needing a £3bn bailout from the government. By the end of 2003, all government policy indicated that Hinkley Point C would never be built, and there was no prospect of any other new nuclear power plants. It seemed certain that nuclear had no future in Britain.
“Without any obvious change in the world, by 2006, the position in government had been completely reversed,” Gordon MacKerron, professor of science and technology policy at the University of Sussex, pointed out. “Nuclear power had become extremely beneficial, important and not uneconomic.”
One thing that had happened in the intervening years was a PR blitz by the nuclear industry, which had deployed scores of lobbyists, including former politicians such as the former energy minister Brian Wilson, to push the idea of a “nuclear renaissance” in the UK.
Between 2003 and 2006, says Andrew Stirling, professor of science and technology policy at Sussex University, “Britain saw the beginnings of a massive pro-nuclear lobbying and PR campaign that continues to this day.” Through the media and advertising campaigns, key messages were hammered home. Renewables were intermittent and unreliable. Overseas gas imports were politically vulnerable. “Green” nuclear was the only plausible way to hit carbon dioxide reduction targets. Keith Parker, who was then chief executive of the Nuclear Industry Association (NIA), told the New Statesman that the 2005 election became a particular focus for swaying opinions. “It gave us a good chance to raise the profile of nuclear power,” he said. In the months leading up to the election, a series of talks was organised at exclusive venues such as the Army & Navy Club on Pall Mall and St Stephen’s Club in Queen Anne’s Gate. Industry leaders and experts came together to explain the benefits of nuclear to politicians and energy journalists. The NIA (which is now chaired by John Hutton) took on the role of managing the influential all-party parliamentary group – an informal grouping of politicians – on nuclear energy. In July 2006, the government declared that new nuclear power stations would be necessary to help Britain reduce its carbon emissions and to ensure an uninterrupted, affordable supply of energy well into the future. Greenpeace launched a legal challenge, claiming that the consultation process behind the government’s recommendation had been totally inadequate. The judge presiding over the case agreed, and in February 2007 ruled that the process had been “misleading”, “very seriously flawed” and “procedurally unfair”. Tony Blair accepted the ruling, but stated that “this won’t affect the policy at all”.
Andrew Stirling believes that there was a crucial, largely unspoken, reason for the government’s rediscovered passion for nuclear: without a civil nuclear industry, a nation cannot sustain military nuclear capabilities. In other words, no new nuclear power plants would spell the end of Trident. “The only countries in the world that are currently looking at large-scale civil power newbuild programmes are countries that have nuclear submarines, or have an expressed aim of acquiring them,” Stirling stated. Building nuclear submarines is a ferociously complicated business. It requires the kind of institutional memory and technical expertise that can easily disappear without practice. This, in theory, is where the civil nuclear industry comes in. If new nuclear power plants are being built, then the skills and capacity required by the military will be maintained. “It looks to be the case that the government is knowingly engineering an environment in which electricity consumers cross-subsidise this branch of military security.”
In January 2008, the announcement came. A new generation of nuclear power stations in the UK was given formal backing by the government. Just as it looked like Hinkley Point C would go ahead, the banking crisis erupted. “The crash pretty well changed everything,” Hutton told me. The private companies, such as E.ON and Centrica, which had previously expressed interest in funding the new nuclear power plants, pulled out. If the UK government wanted to go ahead, it would have to pay for the power plants itself. This was a complete departure from its previous insistence that the private sector would shoulder both the development costs and risk. Despite the financial chaos, the government was still determined to make Hinkley work. The key piece of the jigsaw was British Energy. The company, which had been pulled back from near-collapse by the government in 2002, owned many of the best sites for building new nuclear power stations. If the government wanted private companies to build nuclear power stations, it would have to sell British Energy to one of the companies. In September 2008, British Energy was sold to EDF. The French company paid £12.5bn to take over eight UK nuclear power plants. It also announced its plan to develop four new power stations.
The financial deal that EDF struck with the British in October 2013 to fund the project – which, in Magnin’s words, amounts to the British taxpayer funding France’s energy needs. It offered to guarantee EDF a fixed price for each unit of energy produced at Hinkley for its first 35 years of operation. In 2012, the guaranteed price – known as the “strike price” – was set at £92.50 per megawatt hour (MWh), which would then rise with inflation. (One MWh is roughly equivalent to the electricity used by around 330 homes in one hour.)
This means that if the wholesale price of electricity across the country falls below £92.50, EDF will receive an extra payment from the consumer as a “top-up” to fill the gap. This will be added to electricity bills around the country – even if you aren’t receiving electricity from Hinkley Point C, you will still be making a payment to EDF. The current wholesale price is around £40 per MWh. If there had been no inflation since 2012, the consumer would be paying an EDF tax of around £52.50 per MWh produced at Hinkley. However, because it is linked to inflation, the strike price has already risen since 2012. (The price will be reduced by £3 if EDF develops another new reactor in Sizewell in Suffolk, as it is planning to do.)
In short, instead of using taxpayers’ money to fund a state subsidy for EDF, the government negotiated a deal whereby the electricity consumer foots the bill. Given that almost every taxpayer in the UK is an electricity consumer, the distinction is largely academic. Furthermore, people in a lower tax bracket often use a similar amount of electricity to higher earners, effectively creating a regressive tax.
“The strike price was set when power prices were very high. They signed the contract when there was a bubble,” Juan Rodriguez, an analyst at equity research firm AlphaValue says. “It’s a brilliant deal for EDF.” he concluded.The deal looks particularly bad when compared with the current cost of renewable energy. As Hinkley’s pricetag keeps rising, the cost of energy keeps falling. And, as a recent report from the public accounts committee pointed out, although energy costs are falling, this just drives up the top-up payment to EDF. “No one was protecting the interests of energy consumers in doing the deal,” the report noted.
In December 2013, the European commission decided that the payments to EDF were so big that they could distort the electricity price across the whole of Europe, and launched an investigation into the deal. The resulting document, published in 2014, raised several issues. First, it stated that the payout to EDF would give the company a huge and unjustifiable advantage over its competitors. The strike price agreement was designed “to entirely eliminate market risks from the commercial activity of electricity generation”.
It noted that EDF has been meticulous in passing on as much risk as possible to the British government. The contract included a state guarantee for any debt that EDF required from the financial markets to fund construction of the plant. Separately, if a nuclear catastrophe hits Hinkley, EDF is also protected. “We’re insuring it, so if there is a disaster, it comes back to the public,” says Molly Scott Cato, the MEP. “Nuclear never has and cannot exist in a private market setting.”
One of the most serious concerns in the EU’s assessment was over the calculations for the “gap” between the wholesale energy price and the strike price. That gap is currently around £50. Once Hinkley starts operating, the European Commission pointed out, EDF’s market share will be so substantial that it could have the ability to manipulate the wholesale electricity market. Depending on the how the strike price is calculated, there might be an “incentive”, the commission noted, for EDF to “behave strategically” to “influence the reference price”. For instance, if EDF abruptly sold a lot of electricity on to the market at a pre-planned time, the wholesale price could drop substantially. The lower the wholesale price, the bigger the difference from the fixed strike price, and therefore the higher the “EDF tax” paid by consumers. As the commission put it, there remained a question over how a “vertically integrated operator” might “react to such an incentive framework”. EDF will have a duty to its shareholders to maximise its profits. But as the commission makes clear, at the same time, the company will have the capacity to move the wholesale electricity market at certain precise times, in a way that could benefit shareholders substantially. Given the European commission’s concerns, the UK adapted its plans, slightly tilting the agreement with EDF so that the profits generated by the project will be better shared with UK consumers. The government estimates that the Hinkley top-up payments will cost consumers around £30bn over the course of the 35-year contract.
In 2012, as it was preparing to negotiate the strike price with EDF, the government hired the consultancy firm LeighFisher to assess construction costs for Hinkley. The higher the cost estimated by LeighFisher, the higher the strike price for EDF. However, as the National Audit Office pointed out in June 2017, LeighFisher is owned by Jacobs Engineering Group. And at the same time that LeighFisher was assessing Hinkley Point construction costs, Jacobs was working for EDF, with some of its staff seconded to the French company. The National Audit Office points out that Jacobs staff were having “input” into LeighFisher’s cost verification exercise. In short, a division of a company employed by EDF was advising the UK government how much to pay EDF. The Department of Energy & Climate Change first identified the potential conflict of interest in 2012, but it wasn’t until August 2015 that the department sent a letter to LeighFisher asking the company to ensure “organisational separation” on the project. The government also requested monthly updates on the arrangements, but the NAO says it did not receive these. In October 2015, two years after the strike price was agreed, LeighFisher signed the agreement for organisational separation, which included “ethical wall arrangements”. It was unclear how “organisational separation” was being achieved.
In September 2015, George Osborne, announced that China would be investing in Hinkley Point as part of a £2bn deal. The state-owned China General Nuclear Power Group (CGN) would own a third of the project. Many commentators were alarmed by the deal Osborne had struck. CGN has established itself as a ruthless player on the world stage. Last year, a senior adviser to the company was accused of trying to obtain sensitive US nuclear technology for China. One Foreign Office source who has worked on US and Asian issues noted that while “America spends all its time trying to keep them [the Chinese] out,” by contrast, “we have literally invited them in. No one really knows what they will do.” CGN’s involvement may have been essential to the viability of the whole project. The UK was in a bad negotiating position, as it seems likely it could not do without Chinese expertise in building the Hinkley reactor. “There is an argument that this reactor is essentially unbuildable,” said Tom Burke, the energy policy expert. It is the Chinese, who have established themselves as world leaders in the complex engineering challenges involved in building nuclear power plants.
“Nuclear power is the technology of the past. We should not keep it alive artificially with government subsidies,” Andrä Rupprechter, Austria’s minister of agriculture and forestry, environment and water, observes.
The attitude of the Socialist Party to nuclear energy is that the decision whether it will be beneficial or not will be made by those living in a socialist society and that the financial and profit worries exhibited in this article will not be a factor - only safety and environmental issues will be of importance on its use.
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