All that glitters is not a golden era for Sino-British relations as nuclear plant stalls
Power station saga continues to unravel despite Chinese state firm’s backing
Ever since the British bulldog resolved to apply a deferential tongue to the current Chinese leadership’s boots, things have gone swimmingly between the two nations. Hailed by both sides, the “golden time” now under way in Sino-British trade and investment is due in no small part to Prime Minister David Cameron’s doggedness in wooing Beijing. That, of course, and his government’s readiness to rule out any more meetings with the Dalai Lama.
One component in this new state of accord already appears gravely imperilled, however. In October, the state nuclear firm CGN (China General Nuclear) announced it would be taking a 33.5 per cent stake in delivering Britain’s first new nuclear power station in a generation: Hinkley Point C, in Somerset, England. At the time, the slated majority partner, EDF – a French government-owned energy company – said work on building the plant’s reactors would start within weeks.
Flash forward four months and things do not look good. EDF last week postponed a final decision on its investment as it reported a 68 per cent downturn in profits for 2015. The company’s share price has more than halved in the last year, while its reduced market value is less than the £18 billion (HK$200 billion) Hinkley will cost (at low estimates).
The source of EDF’s financial difficulties is low electricity wholesale market prices. The reasons for the British government’s desperation to get CGN involved are slightly more tangled.
To shorten a long story, a decade ago Britain struck on nuclear as its best option for keeping the lights on while it sets about the bold, and some might say foolhardy, mission of cutting carbon emissions to 60 per cent of 1990 levels by 2030. Nuclear, the panjandrums said, would be more cost-effective than investing in green energy, at least for the time being. One nuclear tech company, Areva, said it could build reactors that would produce electricity profitably at £24 per megawatt-hour. Better get cracking, then, lads.
In February 2007, EDF announced its intention to have Hinkley Point C operational by Christmas 2017. Little in the way of activity ensued, however. The Fukushima disaster of 2011 came hard on the heels of the financial crash. Other investors fell by the wayside. Then, suddenly, in December 2013, the government agreed a deal to pay EDF a guaranteed £92.50 per MWh, index-linked for 35 years after commissioning. The deal safeguards the firm against fluctuations in the market price: any slack will be picked up by British households. Following the recent price collapse, £92.50 amounts to more than double the current market rate.
The date now being talked about for switch-on is 2025, another nine years hence. The British media and public have grown increasingly sceptical, but there persists a kind of mad logic to the government’s approach. It is – as the saying goes – in for a penny, in for a pound. Coal plants are being closed down and new capacity is needed. The country has applied for, and been granted, permission by the EU to guarantee up to £16 billion in loans for Hinkley.
The British credo that the state should leave the business of energy to the private sector does not, clearly, preclude using taxpayers’ money to help other governments build its energy infrastructure. And nor in this instance does it appear to deliver the right technology at a reasonable cost.
Some in Britain, and indeed the US, were aghast at the deal with CGN for other reasons. Western spooks spend much of their time these days guarding against state-sponsored cyber-espionage from China – and yet here we have politicians handing the hackers the keys to a civil nuclear project?
From the Chinese perspective, on the other hand, it’s easy to see the appeal, even as this project flounders. To date, the PRC has only managed to export its nuclear expertise to countries such as Romania and Pakistan. Now it has the chance to design, build and operate a commercial nuclear power station in the country that pioneered them – besides the Hinkley deal, CGN has been given permission to develop its own reactor, for use at another site in England.
For now, the prognosis for Hinkley is not helped by the fact that the same technology has been subject to delays and cost overruns everywhere else it is under development: in France, in Finland and in Taishan, Guangdong province, where two European Pressurised Reactor (EPR) units are being built by CGN, with 30 per cent funding from EDF.
The two Chinese units are, incidentally, only four years behind schedule so far, compared with nine years each in Finland and France. Perhaps CGN will step up its funding to save the British government’s agony. But as the case for halting Hinkley Point C becomes stronger, it’s equally possible that the special relationship Cameron thought he was cultivating may be about to suffer a little nuclear fallout.