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Hinkley Point nuclear reactor: insurance for the future or expensive gamble? Hinkley Point nuclear reactor: insurance for the future or expensive gamble?
(about 2 hours later)
The announcement that China is backing the first British nuclear power station in a generation, at Hinkley Point in Somerset, will stoke the debate over the plant’s cost. Despite the involvement of two state-owned companies – France’s EdF and China’s CGN – British energy users will have to make a substantial contribution too. The announcement that China is backing the first British nuclear power station in a generation, at Hinkley Point in Somerset, stokes the debate over the plant’s cost. Despite the involvement of two state-owned companies – France’s EDF and China’s CGN – British energy users will have to make a substantial contribution too for what is claimed to be the most expensive power station of all time.
Who will build Hinkley Point?Who will build Hinkley Point?
The project will be a joint venture between EdF and China General Nuclear Power Group, with the latter taking a 33.5% stake as well as covering a third of the construction cost. EdF will lead the project and pay for the rest of the bill. The project will be a joint venture between EDF and China General Nuclear Power Group, with the latter taking a 33.5% stake as well as covering a third of the construction cost. EDF will lead the project and obtain the initial upfront financing from banks and other investors.
How will the £18bn cost affect British energy users?How will the £18bn cost affect British energy users?
Paying for a site that will produce produce 7% of Britain’s electricity needs – or 3,200 megawatts of nuclear power – is not cheap. Under the subsidy regime promised by George Osborne to the plant’s backers, householders and businesses will need to pay £92.50 per MW hour for Hinkley electricity compared to a current wholesale price of £40. Adding to the effect on households, the £92.50 will rise in line with the consumer price index (CPI) rate of inflation, meaning that, by 2030, the guaranteed price could be as high as £150. The final cost for a site that will produce produce 7% of Britain’s electricity needs – or 3,200 megawatts of nuclear power – will come back to energy consumers. Under the subsidy regime promised by George Osborne to the plant’s backers, householders and businesses will need to pay £92.50 per MW hour for Hinkley electricity compared to a current wholesale price of £40. Adding to the effect on households, the £92.50 will rise in line with the consumer price index (CPI) rate of inflation, meaning that, by 2030, the guaranteed price could be as high as £150.
Is £92.50 per MW hour a rip-off?Is £92.50 per MW hour a rip-off?
EDF supporters will argue it is misleading to compare a £92.50 guaranteed price for nuclear with current wholesale power prices because the latter are artificially low owing to the depressed value of coal – which still supplies much of our power needs. They would point out that wholesale power prices were double their current level in 2008 – at £80 per MWh – and could rise to this level when Britain’s coal-fired power stations are phased out because of age and greenhouse gas regulations.EDF supporters will argue it is misleading to compare a £92.50 guaranteed price for nuclear with current wholesale power prices because the latter are artificially low owing to the depressed value of coal – which still supplies much of our power needs. They would point out that wholesale power prices were double their current level in 2008 – at £80 per MWh – and could rise to this level when Britain’s coal-fired power stations are phased out because of age and greenhouse gas regulations.
How does it compare with renewable energy?How does it compare with renewable energy?
The issue for critics of renewables – wind, solar, marine – is reliability as well as cost. Atomic power advocates claim that renewables are also unable to guarantee constant energy production, unlike nuclear. They add that gas, a relatively low-carbon power source, is a fossil fuel that is more damaging in terms of global warming. And they insist that some wind projects backed by the government – under a scheme running till 2021 – could cost £137 per MWh. A key issue for critics of renewables – wind, solar, marine – is reliability as well as cost. Renewables are currently unable to guarantee constant energy production, unlike nuclear although expected improvements in battery technology may change this shortly. Nuclear advocates add that gas, a relatively low-carbon power source, is a fossil fuel that is more damaging in terms of global warming. And they insist that some wind projects backed by the government – under a scheme running till 2021 – could cost £137 per MWh although other experts say onshore wind is close to being cost competitive with even fossil fuels.
What do financial experts think?What do financial experts think?
One of the most vocal critics of the Hinkley deal is Peter Atherton, an analyst for investment bank Jefferies. He calculates that Hinkley will be producing annual pre-tax profits for Edf and CGN of £2bn, rising to £5bn by the end of the 35-year contract. He believes Osborne is gambling that world oil and gas prices – the benchmark for alternative power sources – will more than double by 2025. “If they don’t, its going to look like financial insanity,” Atherton said this year.One of the most vocal critics of the Hinkley deal is Peter Atherton, an analyst for investment bank Jefferies. He calculates that Hinkley will be producing annual pre-tax profits for Edf and CGN of £2bn, rising to £5bn by the end of the 35-year contract. He believes Osborne is gambling that world oil and gas prices – the benchmark for alternative power sources – will more than double by 2025. “If they don’t, its going to look like financial insanity,” Atherton said this year.
How will Hinkley benefit the UK economy?How will Hinkley benefit the UK economy?
The government claims that the two new reactors at Hinkley will create between 20,000 and 25,000 jobs during construction and 900 permanent jobs once in operation. A government study from Oxford Economics and Atkins found the UK supply chain could capture 44% of the total value of a new nuclear reactor. Ministers also hope that Hinkley will also kickstart a next-generation nuclear power industry, amid fears that the current generation of nuclear power professionals in the UK will retire without a replacement wave of British employees. The government claims that the two new reactors at Hinkley will create between 20,000 and 25,000 jobs during construction and 900 permanent jobs once in operation. A government study from Oxford Economics and Atkins found the UK supply chain could capture 44% of the total value of a new nuclear reactor but EDF claimed today (Wed) that it would be 60%. Ministers also hope that Hinkley will also kickstart a next-generation nuclear power industry, amid fears that the current generation of nuclear power professionals in the UK will retire without a replacement wave of British employees. EDF and the Chinese are already now planning joint ventures for new reactors at Sizewell in Suffolk and Bradwell in Essex, the latter controversially using Chinese engineering designs and operatorship.
When does building work start and when will it finish?When does building work start and when will it finish?
Preparatory work has begun on the Hinkley Point C site – next to an existing nuclear site – and £2bn has been spent already. But work is due to begin in earnest before Christmas, with the final contract due to be signed within weeks. The plant is due to open in 2025. Preparatory work has begun on the Hinkley Point C site – next to an existing nuclear site – and £2bn has been spent already. But work is due to begin in earnest during November with EDF’s final investment decision - a point of no return on Hinkley - due at the same time. The plant is due to open in 2025, later than originally expected.
Is there a question mark over the technology?Is there a question mark over the technology?
Hinkley Point C will use the French-designed European Pressurised Reactor [EPR] technology, which has yet to enter full service elsewhere. Two plants being built in Finland and France are due to use EPRs too but have been hit by cost overruns and construction delays. Hinkley Point C will use the French-designed European Pressurised Reactor [EPR] technology, which has yet to enter full service elsewhere. Two plants being built in Finland and France are due to use EPRs too but have been hit by major cost overruns and construction delays. EDF said it has learned its lessons from those schemes.