The Government has tasked Barclays Bank with finding investors for the proposed Sizewell C (SZC) plant. Reports surfaced in the Mail on Sunday that Centrica is planning on taking a stake in the company. Perhaps the fact that the report emerged in the Mail on Sunday rather than the Financial Times is a sign that the decision is still subject to vagaries.
This report has me scratching my head so hard it hurts! Why would Centrica, which in 2016 abandoned plans to invest in Hinkley C partly because of ‘the lengthening time frame for a return on the capital invested in a project of this scale‘ now opt for an investment in SZC? After all the doubt about return on investments in SZC may be viewed as, if anything, even more threadbare, to that of Hinkley C.
Under the so-called Regulated Asset Base (RAB) set up by the Government to fund SZC electricity consumers will largely fund the construction of the power plant. Equity (share) owners will also put in a still unclear proportion of the funds, but they will be insulated from having to pay the (well-nigh inevitable) cost-overruns from building the project. So far the Government and EDF have said they will each take 20 per cent shares. Where’s the rest coming from? Nobody knows! But my bet is that most of it will have to come from the Government, unless there’s some big (yet-to-be-announced) fix along the way.
Electricity consumers will pay for the cost overruns. Now, as part of this, the equity owners are guaranteed a modest profit even before generation starts, provided, according to the Government’s own stated plans, the project is on track (very unlikely in practice!). In 2019 the Government’s RAB model for nuclear power actually said that there would be ‘the reduction or suspension of investor returns in delay scenarios'(see page 14 of the document here).
This a crucial issue for potential investors. They are already going to have to wait a long time for any return on the money they will have to put down for any investments. Indeed it is not clear to me how EDF are going to seriously start building SZC (that is apart from a facade of land-clearing etc) until Hinkley C is more or less finished.
Hinkley C is stretching nuclear logistics, and SZC will have to be done without any of the Chinese expertise that is being deployed in Hinkley C. Hinkley C is unlikely to be finished before 2027, and quite probably will not start generating large amounts of electricity until after then. This means that SCZ the plant will not begin its construction until at least 2027. It will not actually start generating electricity and earning revenue from electricity sales until 2035, possibly a great deal later. (I hope to live long enough to see this, because I will be assured of what might be considerable longevity!)
The investors are going to have to put down some money soon to at least buy an option to invest before the project construction actually starts. However, on the basis of the Government’s proposals, cost overruns, never mind inflation, will extinguish profits to be made during construction. To me, it looks like investment money that might as well be thrown away. Serious cash will probably only start coming around 2040!
So, on the basis of the plans as published so far, I am at a total loss to understand what any investor sees in investing in Sizewell C.
By David Toke
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