Which Countries Will Cover Debts Of Hinkley C Project?

Originally published on Real Feed-In Tariffs
By Dr. David Toke

As widespread incredulity spreads about the UK Government’s insistence that the plan to build Hinkley C nuclear power station is still on track, we must wonder which country and which companies will take the hit in the event of the near certain financial catastrophe that will befall the project. It is near certain given that the first three reactor projects, in Finland, France and China, have all suffered delays and thus heinous cost overruns. Indeed the failure of the European Pressurised reactor (EPR) design, produced by the French state owned nuclear constructors, AREVA has so far ruined AREVA. This company is now being merged with EDF who are already set to fork out billions to plug the financial holes in the company.

The UK Government is insisting that it will not pay for any cost overruns suffered by the Hinkley C project, which is due (on the latest word) to start construction in 2016. Quite how that squares with the £10 billion worth of loan guarantees to be offered by the UK Government is not clear. However, if the British Government will not pay for the cost overruns then who will? The Chinese nuclear companies involved in the deal? That sounds odd given that Chinese companies, whilst they are state owned, are incentivised to make money. There managers will not do well if they make large losses. Of course western state owned companies can continue making loss after loss, as typified by British and French nuclear operations, and expect to be continuously bailed out by the state.

So, is the French state effectively going to underwrite the whole project through a merged EDF-AREVA? Certainly British electricity consumers will be paying out large sums over a very long period for any electricity generated by the project (for 35 years after generation starts), sums that will  increase with inflation. I wish people would not keep quoting the agreed 2012 figure of £92.50 per MWh. It is now over £94 per MWh. Meanwhile of course the Government has stopped the scheme that pays for wind power to be paid just £80 per MWh for just 15 years (and no loan guarantees).

But it seems that EDF-AREVA could end up carrying the can for cost overruns on top of the £25 billion price tag already estimated. This could do serious financial damage to EDF. Ultimately the French electricity consumer would end up paying a high price to install a failed nuclear power design in the UK. Does the French public understand this? They ought to be acquainted with what they are taking on.

Reprinted with permission.