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UTILITY WEEK | 23RD - 29TH OCTOBER 2015 | 17 Finance & Investment Analysis T he Hinkley Point C nuclear new-build project has critics massing on several fronts, especially with its cost soaring to a massive £24.5 billion for a plant with a capacity of just 3,200MW. Importantly, many nuclear experts have expressed profound misgivings about the proposed technology. The third-generation European Pressur- ised Reactor (EPR) design, built by the finan- cially troubled Areva, has faced seemingly intractable problems at the Olkiluoto site in Finland since construction started in 2005 – commissioning is not expected there until 2018. EDF's own domestic nuclear new-build project at Flamanville in Normandy has fared little better, with the latest opening date – now 2018 – delayed by around six years. Various potentially serious technical prob- lems have been encountered, some of which cast doubt on the durability and reliability of some materials used in the reactor core. With EPR costs soaring, some experts argue that far smaller nuclear plants should be built. In particular, thorium-based reac- tors are attracting increasing support from some nuclear engineers – and they leave less of a waste legacy. Others argue that the UK should not be building any new nuclear plants at all – and effectively should emulate Germany, Italy, Spain and Sweden, all of whom have opted out of new nuclear-build. The costs of new nuclear plants are unquestionably enormous, especially com- pared with gas-fired plants, although the lat- ter do face material long-term uncertainties about gas supply and gas prices. The 3,200MW Hinkley Point C complex is now estimated to cost, including the accrued interest during construction, £24.5 billion. By contrast, the planned 1,800MW combined cycle gas turbine (CCGT) plant at Trafford – admittedly battling to achieve financial close – is priced at £800 million. The price differ- ential per MW is up to 18 times higher. And the financial strain will be felt by EDF too, with ratings agencies warning of a possible downgrade unless it acts to address its rising debt. News that EDF expects to dispose of €10 billion in assets in an effort to shore up reserves ahead of the Hinkley Point nuclear development project has come as little surprise to analysts. "EDF needs to address its debt pile, and it's clear sales are needed," RBC Capital analysts said. It's no wonder then that some critics advocate scrapping Hinkley Point C alto- gether. They point to the agreed 35-year inflation-proof £92.50p per MW contract for difference and the near impossibility of fore- casting energy prices so far into the future. Aer all, if there were further Chernobyl or Fukushima type accidents, there would be a real risk that Hinkley Point C could become a massively expensive stranded asset. Furthermore, fuel prices could also shi alarmingly, as was the case in the mid-1970s when oil prices quintupled within a few years. During the 1960s, the Central Electric- ity Generating Board had constructed a fleet of expensive oil-fired plants. There is also the issue of timing: the UK's last nuclear plant, at Sizewell B, was designed in the 1980s. In the intervening period, new baseload plant has been almost entirely gas-fired. Undoubtedly, with the overall plant mar- gin now down to virtually zero, the lack of new baseload plant coming on stream remains extremely worrying. Potential nuclear investors are also wary about the impact of the halving of the oil price over the past 18 months. In its wake, gas input prices have been falling, and world coal prices have been low for some time. Hence it is argued that the UK should follow Germany and build more fossil-fuel plants – Germany has recently been com- missioning new coal-fired plant, despite its unbridled renewables commitment. And, of course, Germany is ditching nuclear power, with all its plants due to close by 2022. Nevertheless, Hinkley Point C has politi- cal traction – although several experts in the Treasury are believed to harbour serious doubts about its financial viability. Nigel Hawkins, director, Nigel Hawkins Associates Hinkley: doomed to fail? EDF says Hinkley Point C offers a good deal for taxpayers and the UK, but an increasing number of critics say it is the wrong plant, at the wrong price and at the wrong time. Nigel Hawkins investigates. Good for customers • The consumer price is competitive with other forms of major low-carbon generation • Consumers will only start paying when the plant starts to generate electricity • EDF says it will shoulder all the construction costs, and with its shared industrial experi- ence and expert UK and international team, the UK taxpayer will not foot any of the bill. Good for the UK's economy • The construction and operation of Hinkley Point C will create 25,000 jobs and aims to create 1,000 apprenticeships • More than 60 per cent of the project's construction value is predicted to go to UK companies • Later projects will benefit from the skills gained from the construction of Hinkley Point C • Additional benefits will be seen in the supply chain and from the planning and regulatory precedents set. Good for action on climate change • Nuclear is the only proven low-carbon option for providing the predictable electricity generation the UK needs • It will provide 7 per cent of the UK's genera- tion needs, while minimising carbon output • The electricity generated from Hinkley Point C will avoid 10 million tonnes of carbon dioxide emissions a year – 600 million tonnes over its 60-year lifespan. EDF's case for the defence As criticism of the project mounts, EDF has remained steadfast in arguing that Hinkley Point C offers a good deal for taxpayers and consumers, provides lasting benefits to the UK economy and will secure affordable low-carbon electricity for the next 60 years, as detailed below.