The latest in the Hinkley Point C soap opera

posted in: China, Energy | 0

 The story of the proposed Hinkley Point C new nuclear power station in the UK has turned into a soap opera: a long running drama in which new plot developments occur regularly. The latest twist was that on the same day (28 July) that the board of EDF voted at last to proceed with the project, the new British government announced a review of the project.


What is Hinkley Point C?

Hinkley Point C (HPC) is supposed to be the first new nuclear power station in the UK since Sizewell B was completed in 1995. It would be the first of several new nuclear stations in the UK which would produce carbon-free electricity that would also avoid the UK increasing its dependence on imported natural gas. The project was originally put forward by the French electricity company EDF, which bought the UK nuclear company British Energy in 2008. Owing to an increase in project costs from about £8bn to £18bn and a sharp deterioration in EDF’s financial position because of lower power prices in its French home market, the project is now intended to be 66.5% funded by EDF and 33.5% funded by the Chinese company China General Nuclear (CGN) with which EDF has a long standing working relationship.

HPC would provide about 7% of the UK’s electricity demand and would help fill the gap arising from the closure of ageing nuclear stations. But it’s extremely expensive. The government provided EDF with a 35 year contract at a fixed price of £92.50/MWh in 2012 prices. This is more than double current electricity prices. Although nobody knows what future prices will be, the National Audit Office recently estimated that the total discounted cost of the de facto subsidy to the project would be around £30bn over the 35 years of the contract. Many commentators believe this does not represent value for money.

The EDF and government decisions

EDF was in principle ready to make its final investment decision in 2014, when the government deal was approved by the European Commission (which checks whether state aid is being given and if so, whether its acceptable under EU rules). But the financial deal with partner CGN was still not finalised and there were still issues to be resolved with the UK government. By early 2016 it seemed everything was finally ready to go. But then in March 2016 the EDF chief financial officer resigned over his concerns about the project. Trade unions which hold a third of the EDF board seats were also opposed. So the board vote was repeatedly postponed. On 28 July the board finally voted, by 10 votes to seven, to proceed with HPC, one board member having already resigned because of the project.

It seemed at last that the deal would proceed and a signing ceremony was made ready at the project site in Somerset. But later that day the UK government announced a review of the project. The signing ceremony was cancelled. The review was announced by the new Secretary of State for Business, Energy and Industrial Strategy, Greg Clark who said: “The government will now consider carefully all the component parts of this project and make its decision in the early autumn.” Journalists appear to have been briefed that “all the component parts” means the involvement of China in the project.

What does this mean?

Little is absolutely known with certainty but the following seems reasonably clear.

Prime Minister Theresa May apparently phoned the French President François Hollande the night before the government’s announcement to warn him. EDF is 85% owned by the French state so she was, in effect, briefing EDF’s main shareholder. It appears from a Reuters article that EDF’s management were told but the other board members of EDF were not. This could give rise to a challenge to the board decision, on the grounds of withholding relevant information. A trade union is already seeking a legal reversal of the decision on the grounds that the board were given only 48 hours to review 2,500 pages of English language contracts, something they regarded as unreasonable if they were to take a fully informed decision.

Crucially it appears that the Prime Minister did not call or inform the Chinese President Xi Jinping. This is despite the fact that CGN is also a state owned company. Moreover, at the time of his state visit to the UK in October 2015, President Xi signed a “Statement of Cooperation” with Prime Minister David Cameron including both the HPC deal and a proposed second deal for CGN to build its own, wholly Chinese nuclear reactor, in the UK, subject to regulatory approval.

For the UK government to inform the French government but not the Chinese is unforgivably rude. It could either be deliberate rudeness – intended to halt further Chinese investment in the UK – or it might have been sheer carelessness. One should never underestimate the role of sheer mistakes in world history (known in the UK as the “cock-up theory”). But it seems most unlikely that the government simply forgot to tell the Chinese.

We have indirect evidence that Theresa May has concerns about Chinese investment in the UK nuclear industry. Her chief of staff and former special adviser Nick Timothy is believed to have considerable influence on her. He has previously written a blog post on the Conservative Home website which was critical of the former government’s policy of encouraging Chinese investment in the UK. This might therefore be a view that Theresa May shares.

Second, former cabinet minister Vince Cable told journalists that, based on conversations he had witnessed in government (which are presumably meant to remain confidential) Theresa May had a “generalised prejudice” against Chinese investment in the UK.

Why oppose Chinese investment?

The two possible reasons for opposing Chinese investment in nuclear are: first, that the UK might feel obliged to adopt a less critical stance on China’s human rights record; and second, that China should not be trusted with critical infrastructure in the UK.

CGN’s investment in HPC would be as a minority and largely passive investor. So it would have no operational influence. The proposed Chinese Hualong One Reactor at Bradwell in Essex would be different. The current plan is for CGN to operate it and have a majority investment stake. Some analysts have suggested that the Chinese might put secret software in the station to allow them to shut it down remotely. But this seems rather pointless. Since CGN will be the operator, they could shut it down whenever told to by the Chinese government. How likely is this?

Closing a 1,300MW nuclear power station without warning would be a disruptive event for the UK electricity system but well within the normal operational tolerances. Power stations quite often have to shut down at short notice, or fail to come on stream when expected. The National Grid is designed to withstand at least a 2,000MW shortfall. HPC would have 3,200MW of capacity and there is an additional 955MW of existing nuclear power capacity already operating (Hinkley Point B). So the concentration risk of capacity at Hinkley is far higher than at Bradwell. In short, a single nuclear power station is not “critical” to the system. Nor is it feasible to somehow convert a nuclear station into a nuclear bomb.

Second, if the Chinese were to shut down Bradwell as a hostile act, it would be the first and last time they could use such a weapon. It would cause worldwide distrust of all Chinese investments, presumably bankrupting Huawei in the process, since no government or company would ever want to deal with them again. The entire Chinese “going-out” strategy of foreign investment would be undermined, along with trust in the Chinese government. Obviously in an extreme national crisis involving the UK the Chinese government would do whatever it might take to protect the nation. But in such a crisis the UK government would presumably have already quarantined any Chinese investments in the UK.


Given the combination of weak support from EDF’s board for the HPC project and UK government doubts, it seems unlikely that HPC will go ahead, even if the government review concludes in the autumn that absolutely everything about the project is satisfactory. Even then, if the UK government makes clear that although a passive Chinese investment in HPC is OK but a Chinese reactor is not, then CGN has no reason to proceed. HPC is merely a means to the end of building the Hualong reactor in Essex. If CGN withdraws then that is the end of the HPC project, since EDF isn’t remotely capable of funding it on its own and there is no credible alternative source of funding.

More broadly, the UK government seems set on a quite different relationship with China. It is one thing to announce a change of policy, something that happens everywhere, even China. The Chinese government could quite well have accepted that, if given a clear face saving solution. But the manner in which the new policy appears to be emerging has done unnecessary and possibly very serious damage to relations between China and the UK.


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