Recent days have seen Government ministers blaming opposition parties for the failure to deploy nuclear power in the UK. But the problem is not politicians, not the Conservatives, Labour or anyone else; it is the extreme difficulty of delivering nuclear power itself. Financially, it is a basket case, and any other technology with similar problems simply wouldn’t get past the lobbyists’ meetings with politicians.
On August 7th Kwasi Kwarteng produced a tweet blaming Nick Clegg and Labour for delays in building nuclear power, saying: ‘Thanks to Labour’s 13-year moratorium and Lib Dem blockers in the Coalition, we made no progress on nuclear. Supply chains disappeared. Since 2015, we got Hinkley approved and Sizewell C received planning consent last month. ‘
However, this explanation does not stand up to serious analysis.
In their 2005 manifesto the Conservatives did not even mention nuclear power, referring instead to renewables and energy efficiency as a means of protecting energy security. By the 2010 election both Labour and Conservatives were backing the idea of building more nuclear power plant, but Conservatives ruled out giving nuclear subsidies. Their manifesto said they would be ‘clearing the way for new nuclear power stations – provided they receive no public subsidy’ .
Of course the Liberal Democrats were very much opposed to new nuclear power before they joined the Coalition in 2010. But then it was the Liberal Democrat Energy Secretary of State Chris Huhne who proposed a new electricity market reform consultation paper at the end of 2010. This allowed, in effect, nuclear power to receive public subsidies under the cover that this same subsidy would be available to other low carbon sources. This laid the basis for the current contracts for difference (CfD) regime which is funding Hinkley C.
But in practice the offer of a generous CfD for Hinkley C proved not to satisfy the prospective nuclear generators. This included EDF which was/is backed by the French state who wanted to promote France’s new European Pressurised Reactor (EPR) design. The most fundamental problem was that no major British political party was then willing to underwrite cost overruns – this was seen as giving nuclear constructors a blank cheque, which it is. Nevertheless this underwriting has now, latterly, been given EDF for Sizewell C under the so-called ‘RAB’ arrangements.
Negotiations for a CfD for Hinkley C dragged on through 2012 and into 2013, with EDF wanting more concessions. These included a very long contract period, a contract price above £80 per MWh (2012 prices), and also a commitment by the Treasury to offer low interest loans to cover the bulk of the construction costs. It was the Treasury, headed by George Osborne who resisted EDF’s demands, and the Government only settled with EDF after the EDF boss threatened to resign. So regardless of what Nick Clegg might or might not have said about nuclear power, it was financial objections by the Treasury that delayed things. Even so, a CfD was agreed in 2013, during the time of the coalition government.
Then the Government had to apply for state aid consent under EU rules, which was granted in October 2014. Planning consent was not formally given until early 2016, but the application, lodged originally in 2013 was never in doubt.
But EDF did not start the major works for Hinkley C (apart from site preparation) until early 2019. Arguments with EDF’s Chinese nuclear partners were part of the explanation for this long delay. Part of the arguments EDF were having concerned delays on the EPR projects in France and Finland. Indeed there were growing doubts even within EDF about whether the company should take the risk with building Hinkley C. One aspect of this was that the Treasury had insisted that in order to get the Treasury loan, the French Flamanville EPR plant had to be operating by 2020. But Flamanville is still not operating to this day. Hence the loan option was lost.
The risks of the project to EDF were considered so great that the Finance Officer of EDF resigned in early 2016 fearing that building Hinkley C would imperil EDF’s finances. In the event, Flamanville did not come online before 2020. So Treasury conditions for granting EDF a loan were not met. So, to progress the project EDF has had to finance the increasingly cost-overrunning project off its own balance sheet. Financing projects directly out of company funds is, in accountancy terms, very expensive since it reduces the scope for dividends, and thus depresses share prices.
So, we can argue that much of the delay to the Hinkley C project is actually down to EDF, and nothing to do directly with British politicians.
Of course EDF is now being nationalised, and its losses borne in effect by the French state, including the costs of building Hinkley C. France is making sure that in the case of Sizewell C it will be the British state that will pay for the cost overruns.
So, in short, nuclear power construction was not hampered by opposition politicians any more than Conservative ones. It is stupid for British politicians to blame each other. UK politicians have tried to control nuclear financing to the extent that it is not treated greatly differently from other technologies, but that has proved impossible. The problem is that the financial control of nuclear construction is virtually impossible.
A big problem is that the political consensus in the UK insists on looking through rose-tinted glasses at nuclear power, and insists on using cost estimates for nuclear power that do not reflect the realities of building plant like Hinkley C (already heading for very large cost overruns). The political consensus does not even consider the possibility that there is a plausible alternative non-nuclear (we say 100%renewable) path to net zero. That is the problem that we have at the moment, and the spectacle of politicians blaming each other is pure distraction from that point.
We should try modelling costs of new nuclear power (including Sizewell C) and also alternative energy sources on the current capital costs of Hinkley C – £25.5 billion according to EDF (2015 prices). This figure, which does not even include returns on capital or the racingly probable prospect of cost overruns in the future, will be an underestimate of the eventual project costs. But at least it will be a start of us getting closer to reality.
More seriously the country is wasting many, many years waiting for the nuclear ‘dream’ to finally materialise. This time has been wasted, to repeat, not because of dithering politicians but because of a dithering over-rated technology, nuclear power.
by David Toke
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