Government needs to end uncertainty over the future of UK energy

Tim Yeo
26 August 2016

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Hinkley C

Energy

Former UK environment minister and chair of the energy and climate change select committee, Tim Yeo, reflects on the political implications of the Hinkley C delay for the future of UK energy.

Downing Street's last minute intervention just when the EDF board took a positive final investment decision on Hinkley Point C has added a new element of uncertainty to this already complex process. 

Ministers, and notably the very capable new top team at the Department for Business, Energy & Industrial Strategy, urgently need to clarify UK energy policy.

First and foremost, there needs to be unequivocal confirmation that Britain remains committed to achieving its legally binding carbon emission reduction targets. Such confirmation is much needed to reassure all investors and in particular the wider nuclear industry. Without it, fears that Britain no longer offers a sympathetic home for new nuclear plant will grow.

Complete decarbonisation of electricity generation, which is needed by mid-century, requires investment to switch increasingly to the low carbon technologies as well as to greater energy efficiency and better demand side management. The essential role that nuclear has to play in a future low carbon energy mix, in Britain and many other countries, is undeniable.

The outcome of the government's review of Hinkley will be closely watched by Hitachi and Toshiba, the backers of the next two nuclear developments in the pipeline. Both are spending time and money, in good faith, bringing forward their projects in the expectation that investment in the nuclear industry will continue to be supported.

Turning to Hinkley itself there are legitimate concerns about the £92.50 strike price. The value to Britain of baseload electricity from Hinkley, and therefore the justification for the high strike price, will decline if commissioning of the plant is further delayed by technical problems during construction. A progressive cut in the strike price could logically be applied for late delivery of the project. Ministers should now demand a guaranteed completion date of not later than 2025.

There must be a Plan B for nuclear. If an alternative nuclear vendor, with a technology that is already in commercial operation elsewhere, is capable of generating electricity for British consumers at a lower price the government should be willing to explore how soon this can be done and how the largest number of supply chain jobs can be secured.

Much of the current debate about Hinkley's future is focusing on the acceptability of Chinese investment in Britain. A minority Chinese stake in a plant controlled by a French (government controlled) company using European technology ought to be relatively uncontroversial. The real issue is the prospect of Chinese control and operation of Bradwell in Essex.

Opponents of this idea must believe that, having invested billions of pounds constructing Bradwell, China would be ready to jeopardise its success and thus wave goodbye to any prospect of earning a return on their investment. Doing so would also destroy any prospect of further Chinese investment in foreign infrastructure projects.

It's hard to see in what circumstances such an action could benefit China. A malign owner of Britain's main airport, London's water supply or one of our largest mobile phone networks, all of which are already in foreign hands, could do more harm more quickly to Britain's economy than closing down a single power station, however inconvenient the sudden loss of up to seven per cent of our electricity supply might be.

Hopefully the review of the Hinkley decision will swiftly conclude that no vital national interest is threatened by Chinese control at Bradwell. This conclusion can reasonably be made conditional on substantive progress being made on the cyber espionage concerns which rightly worry Britain and other western countries.

This outcome should also reassure Horizon and NuGen that if they progress to the point at which they have a credible value for money proposal no new obstacles will be put in their way.

It is not unheard of for national governments to introduce national security tests with clear conditions and criteria to address such concerns. In Europe, such requirements include avoiding majority foreign control of large infrastructure projects, or even specifying vendors for certain aspects of the development to minimise the risk of cyber security surprises.

Such conditions can help to remove the politics that increasingly surround large infrastructure projects, such as new nuclear build, and deliver the much needed investor certainty critical to getting capital intensive projects with long payback periods off the ground.

Urgent resolution of the current uncertainty is clearly desirable. Without it there's a danger that the cost of future investment in essential infrastructure of all kinds will rise as investors demand a political risk premium for British projects. This would have an impact way beyond the energy industry and its burden would be borne by consumers in the form of higher prices.

Tim Yeo chairs New Nuclear Watch Europe and the University of Sheffield Industrial Advisory Board for the Energy 2050 initiative. He is also chair of AFC Energy and is a board member of Eurotunnel. He was previously the MP for South Suffolk, minister for the environment and countryside and a former chair of the energy and climate change select committee.