SQUEAKY BUM TIME
Twelve years ago Sir Alex Ferguson, then Manager of Manchester United, coined a somewhat earthy expression, one which reappears near the end of every football season. Sir Alex said it was “squeaky bum time” for those managing clubs at the top and bottom of the league they were in. The expression could equally well be used to describe the situation in which those involved in the nuclear energy industry and its supporters now find themselves.
The United manager was describing the sound made by managers as they squirm about nervously on their plastic seats in the football pitch dug-outs, uncertain about the likely result of the game in progress, worried about the reaction of the supporters and afraid of the impact the result might have on the season as a whole and their own careers.
Is that not how many of us feel as we wait for a decision by EDF and its anticipated Chinese supporters over the construction of Hinkley Point C, which still has serious financial and technical uncertainties to resolve? As to the future, if something goes wrong with the project and – perish the thought – Hinkley doesn’t get built then what would that imply for the future of our badly-needed nuclear renaissance.
As one would expect, EDF and the Government sound confident enough, at least in public. Nevertheless, an increasing number of Treasury officials and political, economic and industrial commentators argue that the project should be deferred or dropped altogether. Hinkley Point C supporters may not like it but these arguments cannot be ignored.
Hinkley’s opponents would like to see more weight put behind support for NuGen’s proposed £15 billion Moorside nuclear power plant at Sellafield in West Cumbria, GE-Hitachi Nuclear Energy’s proposal for stations to be built at Wylfa and Oldbury, or some other reactor type.
In my piece in last month’s Newsletter I came close to switching sides, to continue with the football analogy. I explained that I wanted to believe in Hinkley but found it increasingly difficult to do so and suggested it might be time for me to look for a new team to support.
A bare twelve months earlier, when I succeeded Sir Bernard Ingham as SONE Secretary, I expressed my delight that EDF and the Government had won the approval of the European Commission for the Hinkley Point C state aid case.
I felt that construction of the first new nuclear power station in Britain for 25 years had moved an important step closer.
I urged SONE members to stop bickering over the amount of Government support going into the Hinkley project and to put their weight behind the leading new build nuclear team at that time – Hinkley. But by last month my own “squeaky bum time” concerns were starting to kick in, to the dismay of some of my SONE colleagues.
This month I will try to get to grips with some of the issues raised by the Hinkley project’s supporters and its opponent s and re-examine what has led to all the uncertainty.
A FEROCIOUS ATTACK
Intense and mainly critical media attention has not helped. This month there have been two particularly scathing attacks on the way the Hinkley Point C team has performed, one in the Daily Mail and the other in its sister paper,The Mail on Sunday. This is significant because these papers consistently support the Conservative Government and are not anti-nuclear.
Moreover, the Daily Mail piece was written by Christopher Booker, who can be described as a critical supporter of nuclear energy, regularly pointing up the nonsense of the Government’s energy policy and the money it has lavished on wind turbines and solar panels. His views are not to be dismissed lightly.
The headline on his story says it all: “£24bn and counting. Lunacy of the biggest White Elephant in Britain.” Lunacy… White Elephant! As attacks go you can’t get much more scathing and painful than that, coming from a journalist seen as a friend of nuclear energy.
Examining the anticipated cost of Hinkley Point C, Mr. Booker has this to say:
“Ministers, led by David Cameron, want to allow the French State-owned energy
company EDF to spend the best part of ten years building a new nuclear power
plant next to an old one at Hinkley Point, looking across the Bristol Channel
to Wales, at a cost of more than £24 billion.
“This is equivalent to the combined costs of the vast Crossrail project in
London, the revamping of Terminal 2 at Heathrow and the 2012 London
Olympics, all put together. Indeed, the cost of just this one power station promises to be as much as the HS2 high speed rail link, the most expensive project planned in Britain.”
Christopher Booker continues in much the same vein, talking of an “absurdly expensive” scheme, partly financed by a huge tranche of cash from the Chinese, which the Government could only persuade EDF to build by agreeing that it could charge nearly double its present wholesale cost for the electricity it will produce.
He is clearly unhappy with the size of the strike price settled upon by the Government, about which several SONE members – notably Sir Bernard Ingham – have consistently complained.
PLAYERS AND SPECTATORS
Returning, briefly, to the football theme, the SONE membership is largely made up of players, those still active and many in executive positions in the nuclear energy industry, and spectators, people like Sir Bernard and me, a growing number of environmentalists and science writers and retired scientists, engineers and academics who recognise the need for nuclear power.
I freely acknowledge that the players usually know and understand more about what is happening on the pitch than those watching from the terraces, as it were, even those who once had an active playing role themselves.
One of the current players is Adrian Bull, Director of External Relations at the National Nuclear Laboratory (NNL) and a SONE committee member. Last year NNL signed three agreements with key French organisations, Areva (less key since its recent take-over by EDF), the Commissariat a l’Energie Atomique (CEA) and EDF.
Announcing the deals, NNL said that they deepened and strengthened the co- operation which already existed between the UK and France on existing and advanced reactors and the development of fuel cycle technologies in support of energy and climate objectives.
What NNL had to say about its enhanced relationship with EDF Energy was significant. It made it clear that EDF’s collaboration with NNL would be expanded to include research, education and training for nuclear energy, with a particular focus on the new build programme. That obviously includes Hinkley Point C.
As such, Adrian Bull is privy to information which is not routinely available to me or, it would seem, to the media. His observations on what I had to say about the strike price issue in the Newsletter last month are therefore informed and helpful.
I reported that there had been media reports that the Government was seeking a
lower strike price for NuGen’s Moorside project than it had agreed for Hinkley
Point and said I didn’t think this was a good idea.
It didn’t seem fair to NuGEn. It would create further uncertainty about what the Government might do in the future, making it even more difficult to attract investors for other nuclear new build projects. It would add weight to complaints, led by the Austrian Government, that the European Commission should not have approved the UK Government’s decision on the strike price, which now looked like a moveable feast.
All true in my view, but I can see how it would seem overly simplistic to Adrian. I am therefore grateful to him for taking the time to add to my knowledge of what is really going on out there on the pitch.
PUTTING ME STRAIGHT
Firstly he assures me that while I might think it unfair that NuGen was likely to get a lower strike price for its Moorside project than that agreed for Hinkley Point it wouldn’t have come as a surprise to the company. The strike prices for GE- Hitachi’s planned power stations at Wylfa and Oldbury, as well as NuGen’s for Moorside, will most definitely be lower than that £92.50 for Hinkley Point C, he says. No question.
According to Adrian that may not be public knowledge but NuGen certainly recognises this to be the case. No doubt we will hear more as and when the actual level of Government strike price support for Moorside is debated.
Adrian goes on to argue, very persuasively I may add, that the “risk” factored into the Hinkley price includes not just the risk for the first of a kind European Pressurised Reactor (EPR) but the first of a kind risk of any new nuclear new build since the mid-1990s. Although Moorside will be the first of a kind AP100 it won’t be the first nuclear power station for decades – Hinkley Point C will carry that burden. So there’s less risk for NuGen from that standpoint.
Adrian says that from the Government’s perspective it has to see strike prices falling. If it agreed a higher price for NuGen (something I certainly didn’t advocate) the legitimate challenge would be “why don’t you build EPRs then, as you know you only need to pay £92.50 a unit for that technology?”
Finally, Adrian makes the point that Sizewell C (if it goes ahead) will also
have a lower price than Hinkley’s and, if Sizewell C is also a twin station
then the Hinkley strike price drops to £89.50, in recognition of the fact that
the first of a kind hit taken at Hinkley is then spread over more stations.
All of that makes sense but there is no getting away from the fact that an increasing number of people still feel that the Hinkley strike price was far too generous.
In any event, apart from its anticipated cost, Christopher Booker also draws attention to the design and construction problems surrounding the type of reactor EDF wants the UK to buy. As he says, the EPR reactors being built in Normandy and Finland have encountered so many difficulties that they are running years over schedule and billions of euros over budget.
Christopher Booker goes on to quote anonymous “energy analysts” as saying that the UK would have been better off going for an Advanced Pressure Reactor, the APR 1400, of the type South Korean engineers have been successfully building in the United Arab Emirates – “on time, on budget and at half the cost of Hinkley.”
The Mail on Sunday’s Neil Craven based his attack on the Hinkley C project on a report produced by the HSBC bank and remarks made in the House of Lords by Lord Howell, a former Tory Energy Secretary.
DAMNED IF YOU DO — OR DON’T
The headline on this piece is as damaging as that on Christopher Booker’ s article. It reads: “DAMNED. Too expensive. Not needed. Top bank report hits plans for £25 billion Hinkley Point C nuclear plant.”
The top bank report, from HSBC, argued that Hinkley was “becoming harder to justify” and concluded that “We see ample reason for the UK Government to delay or cancel the project.”
Central to the criticisms of the Hinkley project by HSBC is its view that the electricity produced by the EPR reactor planned for Hinkley is likely to be too expensive as European wholesale prices fall, along with demand for energy from UK users. It warns of the danger of “a huge difference between the UK forward prices and the Hinkley price.”
HSBC believes that the EPR reactor may not be viable, due in part to a rising number of electricity grid links with the Continent providing a ready source of cheaper supply. At the same time, the bank said, projections by National Grid to 2025 all point to flat or declining demand, possibly of one per cent a year.
In his time as Energy Secretary Lord Howell, the former David Howell, led the drive towards more nuclear power launched by the Margaret Thatcher government . This withered on the vine under Lady Thatcher’s successors, of all political persuasions – Tory, Labour and Coalition. Had that nuclear expansion programme taken place we might not be in the mess we are in today, doing our best to play catch-up and paying a price for it.
Lord Howell, possibly more in sorrow than in anger, describes the EDF project at Hinkley as “one of the worst deals ever for British households and British industry” and said he would “shed no tears” if it was abandoned.
HSBC, Lord Howell and Christopher Booker all reckon that large nuclear reactors , many of which have a history of escalating costs and sliding deadlines, have a bleak future.
They argue that small modular reactors may be preferable economically. That may be the case, but not all large-scale nuclear construction projects have encountered the sort of difficulties experienced with the EPR reactors in Finland and Normandy. The full extent of the cost over-runs at the two sites is still being assessed and that experienced with the Olkiluoto EPR project in Finland is proving particularly difficult to quantify.
New figures submitted to the International Chamber of Commerece’s
arbitration proceedings this month show that the Finnish nuclear operator TVO and the plant supplier, Areva-Siemens, updated (for which read increased) the amounts of compensation they are claiming from each other.
TVO’s updated estimate of its costs and losses has increased to 2.6 billion euros until December 2018, up from the 2.3 billion euros identified in an estimate made two years ago. The Areva-Siemens updated claim is now about 3.5 billion euros, up from 3.4 billion euros, which includes penalty interest charges and payments allegedly delayed by TVO, leading to loss of profits.
The arbitration procedure started in December 2008, prompted by Areva- Siemens, and it is thought it might go on for several more years yet. Despite all this , TVO says that the project is “making progress” and that it is continuing to support Areva-Siemens to complete the facility. I can’t see that TVO had much choice at this late stage in the project.
A ROBUST DEFENCE
So what does EDF’s Hinkley Point C project have going for it? It seems reasonable to assume that EDF and Areva have learned from the mistakes which have been made. This should help the Hinkley project.
Moreover, despite the increase in the cost estimates for the construction of Hinkley it has long been recognised that nuclear new build plant costs will always exceed those for gas and coal fired power stations – it’s the nature of the beast – while fuel costs will be substantially lower and more predictable. The arithmetic still ends up in favour of nuclear, although the gap is narrowing.
Most importantly, Government support for the Hinkley C project may not be as rock solid as it was a year ago but it still seems firm enough at the highest levels, including Downing Street.
The Secretary of State for Energy and Climate Change, Amber Rudd MP, has said that Britain could sign a deal with Chinese investors during a visit by China’s President Xi Jinping in October and it is believed that despite China’s current economic problems the Chinese will still want to have a stake in the UK’s reactor building programme.
Loss of face isn’t confined to Chinese politicians, of course, and EDF has done its level best to keep the Prime Minister and the Energy Ministers on side, as well as EDF’s potential Chinese investors.
EDF is currently spending around £600 million (which would buy quite a few top footballers) on its eight UK nuclear power plants, keeping all of them going until, hopefully, Hinkley Point C is commissioned and brought on stream. That level of spend is highly significant and most welcome to a Government potentially facing an energy crisis.
Then there are the employment considerations – around 900 jobs at the new Hinkley stations for more than 60 years and around 25,000 employment opportunities during the construction phase, expected to last at least a decade. Much was made of these statistics by the Department of Energy and Climate Change in its response to the Mail on Sunday article.
The point was further underlined by this month’s announcement of further
preferred bidders for work associated with the Hinkley Point C project. The
combined value of these contracts is some £1.3 billion and the majority of the
latest contracts have been awarded to UK companies.
Sensibly enough, EDF emphasises that the contracts “remain subject to a final investment decision to proceed with the project.” Did I hear the sound of squeaking bums?
I had something of a squeaky bum moment myself when I first heard that BBC Four was preparing a season of programmes called “BBC Four Goes Nuclear.” I was even more worried when told that the first programme in the series would be a one-off documentary entitled “Britain’s Nuclear Secrets : Inside Sellafield.”
In the event I need not have been concerned. I watched the programme and it actually lived up to the promise of the programme makers “to give our audiences a chance to contemplate the history and the extraordinary potential of our nuclear age.” It tried to be fair and, for the most part, it was.
Of course it contained references to Sellafield being secretive – it has been, far too often – and to the storage there of “the most dangerous substances on earth” It also covered the rush to obtain plutonium for nuclear weapons and the 1957 Windscale piles fire. But it also described Calder Hall, where it happened, as “a scientific success story.”
Jim Al-Khalili, a nuclear physicist presented the programme and ended it on a very positive note. “We need nuclear energy. Nuclear power is crucial to our energy needs. The story of Sellafield is the story of the nuclear age. We are on the cusp of a new nuclear age. We must take the long view on how nuclear energy and nuclear wastes should be dealt with.”
The rest of the series may be less even-handed. It consists of the film “War Book”, described as a chilling story of a war game involving government officials, then a documentary dealing with the Manhattan project and finally a programme exploring the complexity of nuclear power – “from Chernobyl to Fukushima, to x- rays and MRI scans – and the dread and the promise it can bring.”
On the basis of the first programme I will watch the rest of the series – and if you missed “Inside Sellafield” and have a catch-up mechanism on your TV set do give it a try.
ANNUAL GENERAL MEETING
This year’s annual general meeting will be held at the Institution of Civil Engineers, Great George Street, London SW1 on Monday October 26, 2015, from 2-5 p.m.