After yet another delay, what now for Hinkley?

Following yet another delay to the Hinkley Point C project, Andy Walker says that the UK governemnt needs to show some real leadership and get its act together on infrastructure. 

The government needs to show leadership if Hinkley is to move from drawing board to reality.

The tents to welcome dignitaries from EDF Energy and government officials were being readied on site at Hinkley Point last night to host a contract signing ceremony to mark the start of construction of the UK’s first new nuclear plant in a generation. The champagne was on ice. The canapés were ordered. Then, late in the evening, the ceremony was called off. The government wanted to have a pause and make the final decision on the project in October.

Despite the warm words coming from the UK government and EDF, it is fair to say that this 11th hour development was not entirely expected. It is clear that the new government under Theresa May is wary of signing such a major contract with all the costs involved without a further review. But this latest delay will do nothing to reassure the infrastructure sector and business generally that the government is committed to implementing major projects in the wake of the Brexit vote.

This is not the business as usual message the government says it is keen to convey.

Theresa May and her ministers are clearly nervous about committing to a project that has increased significantly in cost. The cost of the electricity alone to the taxpayer has rocketed from £6bn to £30bn. The strike rate cost of that electricity is £92.50 pounds per megawatt hour for 35 years. It’s a massively costly agreement, but the government knew all this and agreed to it when it signed new agreements four years ago.

The latest delay will give encouragement to opponents of nuclear power who want to see the UK’s energy provided by renewables and other alternatives. The problem is of course that those renewables are not sufficient or geared up to supply the nation’s energy needs. Hinkley will supply 7% of the nation's energy when fully on stream. Nuclear power is now a well-established and necessary part of the UK’s energy mix. 

Nuclear power is a well-established and necessary part of the UK's energy mix. As National Infrastructure Commission member John Armitt said, "Hinkley is the only show in town" when it comes to providing for Britain's future energy needs.

As National Infrastructure Commission member John Armitt said yesterday, “Hinkley is the only show in town” when it comes to providing adequately for Britain’s future energy needs. There is no Plan B. Or so it would seem.

We can only speculate as to the reasons for the government’s further dithering on Hinkley. There have been suggestions that Theresa May herself is worried about costs and also whether EDF are really in a position to deliver on the project, given the technical problems they have had with similar reactors in France and Finland.

The Labour opposition, while supporting nuclear power as a key part of the nation’s energy mix, believe that the Hinkley electricity price deal should be renegotiated by reviewing the base price and tapering the deal so that if the project is further delayed during the construction phase then the price should go down. 

There have also been concerns raised in the media about the Chinese investment involved in financing a third of the Hinkley project. Much has been made of the previous comments of Theresa May’s joint chief of staff Nick Timothy when he argued that George Osborne should not be selling the UK’s national security to China.

Hinkley Point was also a project driven by and closely associated with former chancellor George Osborne. Whether his successor Philip Hammond will be as willing to don the hard hat and hi-vis to drive the project forward remains to be seen. 

In addition, given the strong minority of EDF board members who are against the project it is clear that there are significant concerns about the company’s ability to see it through. Can EDF deliver the deal? Does it have the financial and industrial capacity to make it work and what are the views of the French government should things go wrong? If market conditions get worse and prices rise further could EDF yet turn against Hinkley? As one French business analyst said this morning “This is not a done deal yet”.

So where does this leave the infrastructure sector? The UK needs the electricity that will be generated by Hinkley. Without it, the government's energy policy is in chaos. There is no plan B. Hinkley really is the only show in town.

Despite the current delay and head scratching in Downing Street, the government will need to find a way of making Hinkley happen.

So, despite the current delay and head scratching in Downing Street, it is clear that the government will need to find a way of making Hinkley happen. The government must be engaging with the industry closely on this issue to make the best decision for the nation. The National Infrastructure Commission should have a key role to play in those discussions. The final decision has to be one that secures the nation's energy requirements for the best possible price but at a price that gets the job done. Crucially, government needs to make this happen.

When she took over at Number Ten, Theresa May said that despite Brexit the UK remained open for business. Her ministers have dropped strong hints that they see infrastructure as a key economic driver for the nation and a major plank of their economic and social development plans going forward.

All warm words, good to hear and easy to say, but the proof of the pudding is in the eating. Currently, it would seem that we don't have any desert on the table. That needs to change - and quickly. 

Over to you Theresa.

Andy Walker is the editor of Infrastructure Intelligence.

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