Utility Week

UTILITY Week 30th October 2015

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18 | 30TH OCTOBER - 5TH NOVEMBER 2015 | UTILITY WEEK Finance & Investment Analysis Is Hinkley a white elephant? Jillian Ambrose asks if Hinkley Point C is still fit for purpose in the radical new energy landscape that has begun to emerge. G ood things are worth waiting for. But not everyone is convinced that EDF's Hinkley deal is a good one. Or even if the 3.2GW power plant is fit for purpose in a new world order for energy. It was in 2008 that the UK first launched a consultation on the Hinkley Point C new nuclear plans. Since then, the French energy firm has sunk millions of pounds and the better part of a decade into protracted nego- tiations with the government, the Euro- pean Commission, and a variety of possible investment partners, before inking a deal with Chinese state nuclear company CGN on 21 October. But in that same time the energy market has changed, political priorities have shied and concerns are growing that the UK may be about to saddle energy consumers with an expensive relic with little relevance in the radical new energy landscape that has begun to emerge. "What is the service that nuclear offers?" asked Bloomberg New Energy Finance EMEA head Seb Henbest at a recent energy conference. "What you need is not bulk supply that is on forever but flexible supply which can bal- ance the variable and very cheap supply that renewables can supply in the future. Nuclear fails for me in terms of what it offers to the system," he said. In recent months, UK energy behemoths National Grid and Centrica have both backed a changing tide in the energy market away from large, expensive energy generation assets towards a distributed, user-centric model that offers flexibility and low capital costs. Centrica backed out of its 20 per cent option in the Hinkley project in February 2013 and this year announced a £1.5 billion strategy shi away from centralised asset investment towards distributed genera- tion. Meanwhile, National Grid plans to use demand-side response for the majority of its balancing by the end of the next decade. For both companies, the new route offers a cheaper, easier way to deliver. These are in stark contrast to the com- plex financial arrangements and extended construction times needed for Hinkley. When the first reactor finally begins to gen- erate power in 2025 at the earliest, the UK may have solved the problem of secure reli- able baseload without the need to pay the £92.50/MWh to be earned by Hinkley for a controversial form of power. Even those who back the use of nuclear generation are not willing to support the Hinkley plans. Labour shadow climate change minister Barry Gardiner took pains to voice his sup- port for UK nuclear development at a recent London conference, saying it will provide reliable, low-carbon baseload power while driving investment in UK plc. But he stopped short of supporting EDF's plans, saying "the cost of the Hinkley deal has been far too high" and raised "another question mark over government competence". And Gardiner is far from the only one railing against the costs of the project. Jefferies' utilities analyst Peter Atherton has been outspoken in his condemnation of the project, branding Hinkley "the most expensive power plant in the world". "For the cost of £16 billion for the 3,200MW to be built at Hinkley, the UK could build Although developers and politicians back the deal, investment analysts and green groups are far from convinced. Vincent de Rivaz, chief executive, EDF Energy "Nuclear power will save customers money compared with other energy options and provide a huge boost to British industrial strength, jobs and skills both in Britain and abroad. [The] announcements are also good news in the fight against climate change." Amber Rudd, energy secretary "Hinkley Point C will continue to meet our robust safety regulations and will power nearly six million households with low-carbon energy." Lord Sassoon, chair, China-Britain Business Council "Why would they want to turn off a nuclear power station in which they had some ownership? It doesn't seem terribly logical to me, except in extreme circumstances, in which that would be the least of the UK's problems." Investec "A long-dated project is the last thing that EDF needs, given the existing pressures on its balance sheet. Unless favourable disposals materialise, we fear the dividend will be a casualty." Doug Parr, chief scientist, Greenpeace UK "With this deal, George Osborne is not so much backing the wrong horse as betting billions of consumers' money on a nag running backwards." Talk back 7% of UK's electricity enough for… over 5m homes £100m contribution annually to the local economy during peak construction or £2bn during project lifetime

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