What will the Hinkley Point C delay mean for your business?
On the 28th July, the same day as final investment decisions were made, Theresa May delayed the Hinkley Point C nuclear power project, claiming a review was needed. This has resulted in much discussion in the press, but what exactly are the issues surrounding the Hinkley delay and, more importantly, how could it affect your business?
What is Hinkley Point C?
Hinkley Point C (HPC) refers to a proposal to build a 3,200 MWe nuclear power station in Somerset. The plans were announced back in November 2010 as one of eight sites earmarked for nuclear generation.
28th July 2016 saw French energy company, EDF, finally make a final investment decision regarding the project, which is set to cost £18 billion, after months of uncertainty. The construction costs will mostly be covered by EDF, and Chinese state-owned CGN, with the UK government having already promised £2 billion to help finance the project.
The plant has the potential to be the most expensive power station in history, supplying 7% of Britain’s power needs, powering over 5 million homes and creating over 25,000 jobs.
It has also been widely acknowledged that, in order for the UK to reach its carbon reduction targets, nuclear will have to be involved in some capacity. NuGen and Horizon, two other nuclear developers, have come out to say that scrapping Hinkley would not fully derail the whole UK-wide new build programme, however there is a possibility that investor confidence in the sector will be harmed, having future implications on project funding.
Why has it been delayed?
On the same day that EDF made its final investment decision, Theresa May’s government announced that it wished to review the project and would make its decision in the early autumn.
This decision to delay has been met with great speculation over why this occurred, with official government sources simply stating that May wished to take time to understand the project fully before giving it the green light, having only been Prime Minister for a month.
EDF had been expecting to sign the contracts that week and expressed great surprise at the news despite Downing Street insisting that May had agreed a final review and timetable with French President Francois Hollande before the delay was announced.
One suspicion is that May has been having doubts about Chinese involvement, in such a large scale domestic project. The China General Nuclear Power Corporation (CNG) currently hold a 33% stake in the project which correlates to £6 billion worth of investment.
It has been speculated that the brakes were put on the project chiefly because of security concerns. Nick Timothy, May’s chief of staff, had previously accused the government of sweeping away rational concerns about national security because of the “desperate desire for Chinese trade and investment”. It is true that May did not share Cameron and Osbourne’s vision of a “golden decade” of China-UK trading, but it may just genuinely be a concern about the project not seeing a substantial return on investment which paused the project.
The government has pledged that EDF will be paid a fixed price of £92.50 per MWh, over 35 years, which adds up to a £30 billion bill in subsidies, according to the National Audit Office. These “top-up payments” are due to wholesale power prices falling rather than rising, as previously predicted, leading some to speculate that renewables would now be the cheaper option.
In an interview with The Guardian, Henrik Poulsen, Chief Executive of Dong Energy, the UK’s biggest offshore wind developer, said that wind turbines could be built on time and within budget to aid the UK’s energy output, filling the gap in energy capacity should Hinkley not go ahead.
If this is the case, it would provide a cheaper energy source and would certainly be a point to consider should the scheme be scrapped.
So what does this mean for the future of the UK’s power?
The dark cloud looming over this debacle is the fact that the gap between supply and demand is getting increasingly close to zero, and decisions will have to be made sooner rather than later in order to ensure the UK’s future energy security.
According to a blog by EDF “more than 35pc of our remaining generation capacity will close down by the end of 2030” so alternatives need to be found, and fast!
Despite the likes of Poulsen, quoted above, claiming that a future without nuclear is possible, there are still many who have bemoaned the delay, stating that nuclear will be undoubtedly necessary if we are to meet energy demands, while still hitting our 2050 green target of an 80% reduction from 1990 levels.
While renewables will undoubtedly play their part in Britain’s ‘green’ future, it is widely agreed that they alone cannot be trusted to ‘keep the lights on’ once the government plans to phase out coal-fired power plants conclude in 2025. Speaking to the Observer, Bob Ward of the Grantham Research Institute makes this point well, commenting that; “You would have to have some baseload to provide power when it is utterly calm and renewables are not providing energy”, continuing “gas and coal plants – which can also supply that baseload - will no longer be viable in future because of their carbon emissions, which cause global warming. You are then left with nuclear.”
Alongside renewables, you do still have shale exploration. The first UK fracking permits, since the ban was lifted in 2012, were granted to Third Energy earlier this year with plans for Cuadrilla to follow suit in October. The UK government has already changed planning rules to speed up the decision-making process by granting powers to community ministers. You can read our Ultimate Guide to Fracking here.
Pragmatically, the future of the UK’s energy supply will rely on a combination of renewables, nuclear and shale gas power. Dr Adam Marshall, British Chamber of Commerce (BCC) Acting Director General, commented that “significant investment in nuclear, renewables, gas and shale is urgently required to meet the needs of businesses and consumers, following the planned shutdown of older and dirtier power plants.”
Furthermore, with the Brexit throwing the UK’s energy supply into even more uncertainty, it is becoming increasingly important that we find our own independent power supply to take us forward into the future.
What about international relations?
A further complication that comes with the Hinkley delay is that of investment confidence. With the rug being pulled out from beneath EDF’s feet so near the finish line, what signal does this send to foreign investors wanting to help fund the UK’s energy policy?
Officials close to the Chinese consortium have already warned the UK government that cancellation of the deal will hinder chances of further investment being secured. Speaking in the Financial Times, Chinese Ambassador Liu Xiaoming said that the decision to delay means the China-UK relationship is now at a “critical juncture” putting the “mutual trust” the two countries have for one another in jeopardy.
It was only last October that Chinese President, Xi Jinping, visited the UK, announcing plans for £40bn of UK-Chinese partnerships (including Hinkley) and only eight days before May announced the delay, £220 million was invested in Sheffield steel as part of a 60-year, billion-pound construction deal with Sichuan Guodong Construction Group which is set to transform the city. Questions have also been raised about the impact this will have on the Anglo-French relationship as Brexit looms. As stated above, May claims that she had spoken with President Hollande, confirming the review, before the decision was made public, but some have speculated that Hinkley is now in the dangerous position of being used as a bargaining chip in EU negotiations.
When the decision to leave was first announced, it seemed probable that France would not dare to carry on investing in such a large-scale project once Britain had decided to jump ship, however it now appears the reverse is true.
85% of EDF is owned by the French state, who are set to lose the £2bn they have already invested if the deal is cancelled. It would be a huge embarrassment for EDF, whose finance director, Thomas Piquemal resigned earlier this year due to his belief that Hinkley would harm EDF followed by board member, Gerard Magnin, also resigning just days before the vote, claiming the project was “very risky”.
Talking to the BBC, Greenpeace executive director John Sauven speculated that EDF’s decision to go ahead with the investment “doesn’t prove the UK is open for business post-Brexit – it just shows Hinkley [has] become too big in the eyes of British and French politicians.”
Greg Clark, the new business, energy and industrial strategy secretary has been quick to reassure both the French and Chinese that plans are still on the table, with a senior Whitehall source claiming that it was not unreasonable for a new government to want to take time to assess a complicated deal that will influence UK energy policy for years to come.
What will this mean for UK businesses?
The impact of the Hinkley delay is two-fold for UK businesses. Firstly, as mentioned above, the signal this sends to potential investors may add to the uncertainty and general lack of confidence that is continuing post-Brexit. This may harm those businesses who are dependent on overseas investment, particularly if they were hoping for a share of Chinese funding.
Marshall, of the BCC, confirms the fact that Hinkley would have been good for business commenting; “major energy projects like Hinkley have hugely beneficial impacts on local economies, generating jobs, procurement opportunities and confidence long before the energy they provide starts to flow.”
The secondary impact of the delay is the repercussions this may have on energy prices. If the project goes ahead, nuclear power will cost more than was estimated, and this cost will be undoubtedly transferred in some way to the consumer. For businesses this could see energy bills creep higher, increasing running costs and therefore impacting your bottom line. At a time when businesses need to prepare for a future of lower interest rates and international uncertainty, this price increase would not be a welcome one.
Conversely, if the project is cancelled then the supply of energy will be thrown into question, and it is simple economics that when demand outweighs supply, prices rise once again. While this would depend largely on alternatives not being found, and will be a much longer-term issue, it is still something which should not be ignored.
Whatever happens, at Love Energy Savings we will always be on hand to find you a cheaper deal. Working with 19 different suppliers who offer 150 tariffs, we can compare the market in seconds. Try it for yourself by comparing online here or for more advice call one of our Energy Experts on 0800 9888 375.