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UTILITY WEEK | 20TH - 26TH MAY 2016 | 17 Finance & Investment Analysis T he ongoing saga of Hinkley Point C and whether it will ever be built contin- ues. Assuming that Brexit (a probable death-knell for the project) does not prevail on 23 June, it now looks as though no final investment decision will be made until Sep- tember. And even if a decision to proceed were made then, it is unlikely the new plant would become operational until the mid- 2020s – a delay of eight years on the original timeframe. Well-publicised doubts have arisen about the proposed financing of Hinkley Point C, despite the government's unprecedented inflation-proof 35-year £92.50/MWh contract for difference (CfD) offer. A key problem is EDF's stretched balance sheet, with net debt of c€37 billion. Moreover, French electricity prices have been falling. Importantly, too, EDF is in the throes of absorbing chunks of the struggling Areva nuclear reactor business. Not surprisingly, therefore, EDF's share price has been weak of late. Ironically, since March's shock resigna- tion of EDF finance director Thomas Pique- mal – ostensibly for harbouring profound concerns about EDF's financial stability if Hinkley Point C were to proceed – there has been increasing focus on the many complex engineering aspects of the European Pressur- ised Reactor (EPR). The EPR was developed from the late 1990s principally by Areva and Germany's leading engineering company, Siemens. Cen- tral to its development was safety. However, its two Western Europe projects – Olkiluoto in Finland and Flamanville in France – have both suffered massive budget over-runs and excessive time delays. In terms of Olkiluoto, it was widely seen as the shop window for EU nuclear new- build projects, although it was recognised that first-of-a-kind additional costs were vir- tually certain. Furthermore, the project origi- nally enjoyed substantial backing from some major local companies, including those involved in the forestry sector. But the reality of actually building an EPR plant – still to be completed – has presented immense technical challenges, as the heavy over-runs demonstrate. Building began at the Olkiluoto site in 2005. Currently, the project is an astonishing nine years behind schedule and is unlikely to be completed before 2018. It may need still further time. Not surprisingly, its cost has soared, to such an extent that the likely outturn may be €5 billion or more above the originally budgeted sum. Various explanations for this vast addi- tional expenditure have been forthcoming, ranging from poor quality concrete in the reactor core to increased regulatory require- ments for nuclear reactors aer the Fukush- ima disaster in Japan in 2011. EDF's experience with third-generation new nuclear-build in its own domestic mar- ket has been equally dire. Construction of the new 1,630MW EPR at Flamanville in Nor- mandy is now more than six years behind schedule as problems continue to mount. The commissioning date has been re- set to 2018 – subject to no further unseen problems. Costs have, of course, been way above budget, with the latest figures flagging a minimum €7 billion over-run to date – a dreadful admission. Disturbing details have also emerged recently about alleged data falsification relating to certain components that were supplied to the EPR at Flamanville. In Asia, the only other EPR construction project – at Taishan in Guangdong Province – has proved less disastrous. The Taishan 1 unit is scheduled to begin operation in the first half of next year, with the second unit lined up to be six months behind. While the Taishan project has faced time over-runs, they are far less pronounced than those of their western counterparts. Indeed, it now looks as if Taishan 1 will be commis- sioned first, despite the construction work starting two years aer Flamanville. Unquestionably, nuclear engineers can point to the immense complexity of the EPR for the litany of problems. And some would argue that much smaller nuclear-powered plants should be built, perhaps based on rapidly developing thorium technology. Nonetheless, the EPR's shocking track record is a major turn-off for potential inves- tors, irrespective of all the other negatives that surround nuclear new-build, ranging from fears of a catastrophic failure to waste disposal issues. When combined with its ongoing finan- cial challenges, Hinkley Point C is unques- tionably fighting against the odds. Of course, it does have tremendous political capital invested in it, both the UK government's and that of EDF's ultimate 85 per cent share- holder, the French government. If the final go-ahead is not given this autumn, the odds are that the Hinkley Point C project will be parked for years. A convinc- ing case could be made for deferring any final investment decision until it is clear whether Flamanville can actually deliver what is says on the tin – namely, generat- ing baseload nuclear power consistently and competitively. This will not become appar- ent until late 2018 at the earliest, which is hardly reassuring for those seeking solutions to the UK's desperate shortage of baseload capacity. In France too EDF will need to spend heavily to replace many of its 58 reactors there. These are crucial times for the EPR, which may – or may not – have a commercial future. Nigel Hawkins, director, Nigel Hawkins Associates Can EPR ever deliver? EDF's dithering over Hinkley Point C should surprise no-one. At issue is the reactor technology and its disastrous track record of cost over-runs at Olkiluoto and Flamanville. By Nigel Hawkins. 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