Tuesday, 27 June 2017

Could latest delays in Hinkley C presage bankruptcy of EDF and more British bailouts?

The latest announcement from EDF that Hinkley C will be further delayed and that EDF will be hit with even more cost overruns risks making true the prediction of EDF former Finance Officer that the project will bankrupt the company. This may well lead to increasing pressures on the UK Government to put billions of UK taxpayers money into the project.

Hinkley C, which former EDF boss Vincent de Rivaz said (in 2007) would be generating by the end of  this year (2017) will now, according to EDF, not be generating electricity until 2027. Ten years on and the project is still ten years away! But meanwhile the company has spent massive sums getting not very far towards building the plant. It is now in danger of wasting even the money the French state has pumped into EDF to save the company and build the project in Somerset.
Sixteen months ago EDF Finance Director Thomas Piquemal resigned, after EDF decided to make a 'final investment decision' over Hinkley C, fearing it could put the whole company at risk.

EDF is already facing financial disaster because of the costs of failing reactor designs at Flamanville in France, Okiluoto in Finland and the costs of renovating ageing reactors in France - not to mention falling incomes from its own power plant. If EDF closes plant then it will have to pay steep decommissioning costs. Last year the French Government agreed to put in an extra 3 billion euros to shore up the Hinkley C project. This is part of an equity share offer, a thinly disguised Government subsidy given that 85 per cent of shares are owned by EDF. EDF shares fell further as a result and are now at around half the value that they were in 2012.

Indeed, there has been a lot of comment on these issues in recent months, but what has been rather less discussed are the knock-on implications for British taxpayers if EDF did indeed go bankrupt. UK politicians have been smugly asserting that it doesn't matter how much loss EDF chalks up in funding Hinkley C since EDF is contractually obliged only to receive income from electricity generation. But this is yet another one of the paper pieces of self-delusion that has always accompanied nuclear investments.

But in the event that EDF was declared bankrupt by the French Government the contract that the UK Government signed with EDF would be worthless. The French Government would then turn to the UK and say that if the power plant, no doubt by then half built, was to be completed, then further funds would have to be supplied by the British Government. Indeed, this sort of scenario has happened before when Sizewell B was being constructed. The CEGB, who was building it, ceased to exist when it was privatised in 1990, and the half-built plant had to be supplied with further funds paid for British electricity consumers to ensure that the plant was constructed.

We would, in the case of the 'half'' completion of EDF, be met with the usual chorus of voices about how it was now 'economic' to complete the plant. No doubt it would be stated that half the price of Hinkley C would be competitive with offshore wind (whose costs have fallen rapidly in recent years) and would thus now be 'economic'. The British Treasury or electricity consumer will then be saddled with a bill to pay for the further cost overruns.

Perhaps we are already being softened up for this. The recently issued National Audit Office report indicated how expensive and uncompetitive Hinkley C is, but contained the quite ludicrous assertion that if only Hinkley C was half paid for by the Government then it would cost half as much. Of course this applies to anything: windfarms, solar farms, my next pair of shoes etc etc etc

But perhaps this is an echo of policy before privatisation of electricity when nuclear power appeared to cost very little simply because the Government, through the aegis of the nationalised industry, paid for all of the construction costs, not to mention taking responsibility for 'back-end' decommissioning costs. Then nobody noticed that they, the taxpayer and electricity consumer, were really picking up the bill. The nuclear industry longs to return to these bad old days.








1 comment:

  1. Dave
    In this Age of Consumer Choice we have a fine range of crises to ‘choose’ from! I tend to think one of them, Brexit, (see your previous post), will be like EDF nuclear power stations. As I think you suggest for Hinkley the project will get half way and then get stuck with very uncertain future choices. Remember the ‘Lays of Ancient Rome’?
    But those behind cried “Forward!”
    And those before cried “Back!”

    Can we stir Claverton or somebody a little bit and get some technical appraisal of nuclear? I am curious about relative cost structures. Do we know technically why nuclear is so costly to build? I understand that low costs of borrowing (governments pre-eminently can borrow at low cost) and the sometimes not obvious subsidies obscure calculations, but I guess there are some underlying factors that raise costs of one industry while leaving others relatively unaffected. Your thought?