Hinkley Point C: further delay on EDF’s final investment decision

EDF’s board had been expected to make the final investment decision today on a new nuclear power station, Hinkley Point C. EDF currently has a 66.5% stake in the project with two state-owned Chinese investors taking the remaining 33.5%.

EDF has however again delayed making a decision and there a number of valid reasons its board should be reluctant to green light the Hinkley Point C investment:

  • from a financial perspective, not only is EDF itself in financial difficulty with its share price falling but it appears to have been unable to persuade any investors to share the project risks and lend it the money it needs to raise in order to finance the project;
  • from a construction perspective, delays and cost overruns on similar EPR (European Pressurised Reactor) designs in France, Finland and China do not bode well for a project that it has been estimated will cost in the region of £16-24 billion; and
  • from a legal perspective, Austria and Luxembourg, as well as a number of German and Austrian energy companies, are currently challenging the EU Commission’s decision to allow the UK to subsidise Hinkley Point C through a Contract for Difference payment mechanism that guarantees the price of any electricity generated by Hinkley Point C at £92.50 a megawatt hour.

With regard to the Austrian challenge, the Commission has justified the UK’s subsidy by reference to modelling that apparently demonstrates that it would be impossible for the UK to fill its energy gap and meet its climate targets without Hinkley Point C. However, the validity of the Commission’s decision would seem to be undermined not only by a lack of transparency surrounding the modelling but also the current German energy policy known as energiewende, which suggests that Hinkley Point C is not necessary to fill the UK’s energy gap.

The UK government will be keen to see EDF’s board approve the Hinkley Point C investment from a policy perspective. However, given the risks involved, it is difficult to see how it can credibly claim that the UK will be able to meet its climate change obligations with an energy policy that now seems to be based on a combination of unabated gas power stations and new nuclear power stations. Policy issues regarding the inclusion of new nuclear within the UK’s future energy mix aside, there are also reports of unresolved concerns with the EPR technology itself.

For a more detailed analysis of the Commission’s decision, the Austrian legal challenge and the German energiewende experience see the links below to articles written by Tim Malloch for the New Law Journal and other Business Shapers blogs.

From 2008 to 2010 Tim developed a litigation strategy that helped persuade the UK government to abandon its plans for a new generation of coal power stations in the UK, including E.on’s proposals for Kingsnorth, Kent.  

Hinkley Point C – as things stand