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Hinkley Point is stalled by costs fallout

Hinkley Point is stalled by costs fallout

The Times, February 7 2015

The project to build Britain’s first nuclear reactor in a generation has been delayed until months after the general election because its Chinese backers have demanded that the French government protect them if it goes bust.

The fallout threatens to delay the £16 billion Hinkley Point scheme’s start date of 2023 and further undermines confidence in Britain’s faltering nuclear rennaissance. EDF Energy, the French state-backed company leading the project in Somerset, originally promised to give the go-ahead by July last year, but now it is expected to wait until this September or October.

Tim Yeo, chairman of the Commons energy and climate change select committee, said: “I’m disappointed by the further delay and hope it can be resolved quickly.”

In October 2013, the state-backed China General Nuclear Power Corp and China National Nuclear Corp provisionally agreed to take a stake of about 40 per cent in the project, which ultimately will be financed by levies on household energy bills.

However, they have serious concerns about Hinkley Point’s European pressurised reactor design from Areva, the loss-making (and also state-backed) French group.

The Chinese companies are refusing to invest unless the French government promises to bail out Areva, if necessary, and cover their share of any cost overruns. Projects to build the same Areva-designed reactors at Flamanville in France and Olkiluoto in Finland have been delayed by at least five years and are more than three times over budget. Chinese concerns that Hinkley Point could suffer the same fate have been heightened by repeated delays to build a pair of EPR reactors in China.

In November, the French reactor company blamed the fiascos in part for suspending its financial targets for the next two years, triggering speculation that it would have to be bailed out by the French state.

The French government is expected to bow to the latest demand from CGN and CNNC because Hinkley Point cannot go ahead without the Chinese. However, working out a financial agreement for Areva will complicate negotiations and push back a final investment decision.

It also presents EDF Energy with the dilemma of whether to risk pressing ahead with construction this summer, as planned, before the project is sanctioned. EDF has given in to demands for Chinese manufacturers to be given a big slice of the contracts for the project.

The Chinese are also demanding that EDF hands over another site, at Bradwell in Essex, where they can build a reactor to their own design, which is likely to be granted. The concessions to China highlight the weak negotiating position of EDF and Areva, dubbed “Team France” by bankers.

Complex negotiations involving British ministers, their opposite numbers in Paris, EDF Energy and the Chinese have been complicated still further by a legal challenge brought by Austria against Hinkley Point, it has also emerged. Austria is challenging the decision by the European Union to approve a £17.6 billion subsidy, agreed by the British government to fund the project, a move that could take at least five years.

EDF Energy, which reports its annual results next week, is seeking assurances from the government that if Austria wins the case and the project has to be abandoned halfway through, the company will receive compensation for the money invested up to that point. EDF Energy declined to comment.