China tightens grip on UK’s nuclear future
Hinkley Point contract to reveal Beijing’s role
AFTER years of talks, EDF and the Government will tomorrow f i nal l y unveil an agreement to build the first UK nuclear power station in a generation.
The approval for the £25bn plant at Hinkley Point in Somerset will be hailed as a landmark moment in British nuclear history.
The ink is not yet dry – in some cases, it is not even on the paper – but already there are serious concerns being raised over the project.
Critics are worried about the staggering sums being handed out by the Government to get the scheme off the ground – and who they are being handed to. The largest finan- cial backer, the Chinese state, has come under fire.
Through two state-owned nuclear energy companies, it will invest billions in the Somerset plants, with permission to construct its own reactors – using as-yet unapproved Chinese technology – in due time.
The deal covers three projects – Hinkley in Somerset, Sizewell in Suffolk and Bradwell in Essex. Talks, which are still going on to nail down the final details, have revolved around the size of the stakes it will take in Hinkley and Sizewell.
EDF had originally wanted to find a group of outside investors to bear the risk of financing a scheme that will not begin paying any money for another decade. It was dealt a blow when British Gas owner Centrica pulled out of its 20pc stake.
Even after then, EDF hoped to take a minority stake – but could now see i ts holding i n Hinkley pushed up almost to 70pc.
China originally agreed to take a stake between 30pc and 40pc.
While EDF pushed the Chinese towards the higher figure, it was last night reported that China will take a 33.5pc stake – leaving EDF with 66.5pc of the project. EDF’s figure also includes Areva’s 10pc stake that the French group acquired when it bailed out the failing reactor maker earlier this year.
Once the final decision is taken by EDF – expected later this year – it will then begin looking for another investor to bring in so as to reduce its stake.
The scale of China’s on-theground involvement in the Hinkley project is a closely guarded secret. Sources close to the talks say that Chinese staff will be ‘embedded’ within teams on the Somerset site. Its involvement is likely to increase at Sizewell, and will take the helm at Bradwell – providing both the workforce and the technology for the plant.
George Osborne, who has been the driving force behind the open doors policy to Chinese funds sloshing into Britain, is pushing for nuclear authorities to fasttrack approval for its reactors designs. EDF has gone to great lengths to play down suggestions that a deal between the French and Chinese governments will leave out British workers.
Its website provides a list of contractors already signed up to carry out the work.
They range from London listed giants – Balfour Beatty will provide electric cables, Rolls-Royce will provide reactor parts and other services, G4S will guard the site – to a local bakery firm that will feed the construction workforce.
So just how much money are the owners of the plant receiving for building the reactors?
The plant owners – in this case, EDF and Beijing – want to guarantee a return for their investment. But electricity prices are notoriously volatile, and can fluctuate wildly even in the space of a single day.
The Government will guarantee EDF will receive a fixed sum – £92.50 – for every unit of power (a megawatt hour) it sells.
The technical mechanism, called a ‘contract for difference’, means the company will receive that exact sum for its electricity. If the price of electricity falls to £50, the state will pay the £42.50 required to top up EDF’s income.
Similarly, if the price soars to £150, EDF must pay the Government back £ 57.50 out of the money it makes. But confusingly, the price it can receive – called the ‘ strike price’ – has been pegged to inflation.
The £92.50 is the price it will receive in 2012 money. This translates to £100.68 in today’s currency, and could be worth up to £120 or more by the time the plant begins pumping power into the system in the next decade.
It will rise in line with inflation every single year until 2060, when the guarantee ends. In 2013, when the subsidy level was agreed, EDF said its nuclear technology was ‘the cheapest of all low carbon technologies’. The system is the same one used to offer renewables to all green energy.
So offshore wind, which receives subsidies of £130/MWh, has seen its payments rise to £141.50.
This is compared to a current price of just above £40 today – though this has fallen in the last year on the back of sliding global oil and gas prices.
But the extent of state backing for the project goes even deeper.
On top of the subsidies once it is running, the Government has pledged £2bn to underwrite the loans EDF will make to fund construction.
As revealed in yesterday’s Mail, under EU rules the Chancellor can offer another £15bn of state backing to the scheme if required. The backing makes EDF’s bonds more attractive, and will help the group raise the money it needs.
The French state-backed firm is also mobilising, and has plans to sell £7bn of assets across its global operations to raise money for the project.
These disposals would shore up its balance sheet and protect its credit rating – making investors more likely to buy debt from it in the future.