Hinkley – get to the point!
Tom Parkinson is an environmental consultant at Groundsure. In this blog, Tom discusses Hinkley Point C and the impact that it will have on the UK. If you have any questions or comments about this blog, you can contact the commercial consultancy team at email@example.com.
On the 15th September 2016, the UK Government historically approved the first nuclear power plant to be built in a generation. The long saga of approval for Hinkley Point C came to end when the Government gave the green light after imposing ‘significant new safeguards’ to protect national security(1).
So, what is the project and what does it mean for the UK?
In a nut shell, the project will involve the construction of a new nuclear power plant in Somerset which will require some 4,000km of electrical cabling, 230,000 tonnes of steel and the movement of 5.6 million m3 of earth.(3)
The Chief Executive of the French owned EDF Energy – who are providing two-thirds of the investment for the project, with the remaining coming from the Chinese Government – has described the approval of Hinkley Point C as “the relaunch of nuclear in Europe."(1) The £20-billion power station is projected to produce 3,200 MW of electricity.(1) Putting this into perspective, that’s enough electricity to power 382,700 Groundsure HQ’s at once! (8) The new plant, Hinkley Point C, will be developed adjacent to the two existing plants, Hinkley Point A and B, and is set to begin generating electricity in 2025.(2) For the UK, this new plant will accommodate 7% of our electricity demands. (2) Hinkley Point A – now decommissioned – is recorded to have had a production capacity of 470 MW;(9) Hinkley B – due for decommissioning in 2023 – is reported to produce 1250 MW. From this, Hinkley Point C is predicted to produce just under double that of Hinkley A and B combined. The predecessors weren’t without their issues though, with Hinkley A’s noise issues (could be heard 5 miles away!)(11) and Hinkley B’s boiler tube cracking issues. (12) Examining the new plant against its predecessors, it’s clear just how far nuclear technology has come and the importance placed on it by the UK Government.
So, reverting to the question at hand - what will this mean for the UK? Let’s start with the consumer. The UK Government has agreed to a ‘strike price’ of £92.50 per megawatt hour (MWh) for the energy generated by Hinkley Point C, (4) meaning the UK will guarantee that EDF receive £92.50/MWh, no matter what the market is doing. That’s more than double the 2016 annualised rate for wholesale electricity prices.(4) Currently, the wholesale price of electricity is approximately £44/MWh.(4) If the markets stay put and this price continues after the development of Hinkley and during its operation (unlikely), it means that EDF and the Chinese investors will bank a share of £48.50/MWh. With an estimated annual output of 28,000 GW-h(13) (assuming the plant operates at 100% capacity 24/7), they stand to make returns of £1.34 billion/year. In practice, this money will come from the consumer, not the tax payer. On the other hand, if the price of electricity soars above the agreed ‘strike price’, this will be refunded to the consumer by EDF and the Chinese. In essence, this does provide a small measure of protection for the consumer against a massively elevated cost of electricity, but also means consumers may not benefit if electricity gets cheaper. A gamble the government needs to take? Why the need for a ‘strike price’? The short answer – nuclear reactors are expensive and the developers need a measure of certainty that such a significant investment will be worthwhile, i.e. profitable(14). Either way, EDF and the Chinese investors will make their returns.
Questions have been raised as to why this price was not renegotiated – the £92.50 per MWh is reported to have been agreed in October 2013. Since then the Government’s estimated future wholesale price has fallen, leading the National Audit Office to alter their estimated ‘top-up payments’ from £6.1 billion (Oct 2013) to £29.7 billion (March 2016)(5, 6) – all to be recovered from the consumer. Implications for bills? Who knows? Until analysts know the accurate price for electricity at the time Hinkley starts generating (2025), the figures regarding consumer bills cannot be predicted.(14) If the electricity price is below the strike price, the consumer will not be benefiting from Hinkley, and vice versa, if it is above, the consumer will be saving. Other economists suggest consumer bill fluctuations will also depend on the ‘energy mix’, i.e. the reliance on nuclear.(14) This could be effected by other sources of energy, such as wind farms.
To answer the above from an economic perspective, EDF advertises, in addition to creating 5,600 jobs during the construction phase, that the project will give a £200 million per annum boost for the South West economy during the core construction phase, with £4 billion to be invested in the South West economy over the lifetime of the power plant. However, there appears to be much complexity surrounding the deal, with confusion over ‘guarantees’, hence why it took so long to get a deal over the line. Although, comfort can be taken with new ‘safeguards’, meaning Government Ministers would be able to stop EDF from selling its stake prior to the completion of the project – who would want a half finished nuclear reactor on their doorstep?!7) Could this, coupled with the funding arrangements not ending up on the Government’s books, potentially spell good news as far as the local and potentially wider economy is concerned?
In 2006, Prime Minister Tony Blair committed the UK to new nuclear and since then successive Governments have argued that it is essential to include nuclear power as part of the UK’s power generation programme.(2) With various companies and governments wanting the plant to be built, the 7% delivery of our electricity and the vital help towards our low-carbon climate goals, there are many arguments for Hinkley Point C.(2) However, there are also substantial arguments to oppose nuclear power – we are all aware of the events of Chernobyl and Fukushima, not to mention the radioactive waste produced.
Here at Groundsure we understand the debate over nuclear power is extensive and complex...all I hope for is that current and historical land uses are assessed in exquisite detail before any future developments begin – a job for Groundsure Review? Additionally, Avista includes assessments of current and planned energy features.
- BBC news, http://www.bbc.co.uk/news/business-37369786 (last viewed, 22/09/16)
- BBC news, http://www.bbc.co.uk/news/business-36897180 (last viewed, 21/02/17)
- EDF Energy Plc, https://www.edfenergy.com/energy/nuclear-new-build-projects/hinkley-point-c (last viewed, 14/02/17)
- The Financial Times, https://www.ft.com/content/70baa0ea-6493-11e6-a08a-c7ac04ef00aa (last viewed, 14/02/17)
- BBC news, http://www.bbc.co.uk/news/uk-36925580 (last viewed, 15/02/17)
- The National Audit Office (NAO) https://www.nao.org.uk/ (last viewed, 15/02/17)
- The UK Government Press Release https://www.gov.uk/government/news/government-confirms-hinkley-point-c-project-following-new-agreement-in-principle-with-edf (last viewed, 15/02/17)
- Figure based on average consumption over 2 months (including weekends) in 2015
- The International Atomic Energy Agency, PRIS, Hinkley Point A - https://www.iaea.org/pris/CountryStatistics/ReactorDetails.aspx?current=271 (last viewed: 19/04/2017)
- The International Atomic Energy Agency, PRIS, Hinkley Point B - https://www.iaea.org/PRIS/CountryStatistics/ReactorDetails.aspx?current=244 (last viewed: 19/04/2017)
- BBC News, Hinkley A: 1965, http://www.bbc.co.uk/somerset/content/articles/2005/12/06/pwaod_hinkley_feature.shtml (last viewed 19/04/2017)
- BBC News, nuclear plant gets nod to restart, http://news.bbc.co.uk/1/hi/england/somerset/6648147.stm (last viewed 19/04/2017).
- Power-Technolgy.com, Hinkley Point C Nuclear Power Station, United Kingdom, http://www.power-technology.com/projects/hinkley-point-c-nuclear-power-station/ (last viewed 01/08/2017).
- BBC News, Q&A: Nuclear Strike Price, http://www.bbc.co.uk/news/business-22772441 (last viewed 01/08/2017)