
Despite funding approval from EDF late Thursday, the £18bn Hinkley Point project in Somerset has been dealt an unexpected blow after the UK government pushed back a final decision in the early autumn. Construction will be delayed once again – leaving it to flexible gas power plants to cover demand in the interim.
Following FID, the newly instated British government was due to sign contacts on Friday – yet PM Theresa May said she needed more time to review the project. A 35-year electricity offtake agreement was meant to be signed on Friday – branded by some critics as a “subsidy deal”. Pay-outs were set to quintuple to £30 billion, according to projections of Britain’s National Audit Office.
Trying to remain positive, EDF Group chief executive Jean-Bernard Levy commented today "I have no doubt about the support of the British government led by Mrs May." Internal EDF critics of the controversial Hinkely Point C projects were side-lined or silence, with one EDF board member made to resign just hours before the vote on a financial close for Hinkely.
China General Nuclear Power Corporation said it remained committed to the project. One third of projects overall costs of £18 billion cost is being provided by Chinese investors.
Comparing generation costs
By 2030, a further 35% of the UK power plant fleet or 30 GW will be taken off the grid, with an estimated 43 plants up for closures. National Grid’s policy scenarios suggest that between 2012 and 2020: about 100 GW of new capacity needs to be built. The 20 GW that was built in the ‘1st Dash for Gas’ wave is dwarfed by comparison.
With £92.50/MWh generation costs – compared to £80-114/MWh for new-build gas power stations – EDF promotes Hinkley Point C as the UK’s lead project on new nuclear capacity.
Bridging the capacity gap
Repeated push-backs of EDF’s financial close on the 3,200 MW Hinkely Point C complex has significantly delayed the project timeline. The reactor was meant to start up in 2017 – and provide 7% of the UK’s energy mix – but is now unlikely to produce any electricity before 2025.
In the face of coal retirements, flexible gas power plants might well be called on to bridge the capacity gap. The UK government has for long been trying to promote the capacity market as a tool to avoid any shortfall in available power generation capacity. Yet, it failed to tackle a “legacy of under-investment.”
Financing hard to come by
Critics like Peter Atherton, managing director, Jeffries remarked that in the UK “not a single MW of capacity can now be built without state underpinning its economics.” Even so, capacity auctions did not make any new gas power project forthcoming.
To achieve Britain’s ambitious 2050 carbon reduction targets, the government needs to close oil, coal and eventually gas power stations – making lenders hesitate as whether finance new gas power capacity, even if underpinned by capacity contracts.
Power producers deem the price of the second UK capacity market auction “too low to advance investment in new, large-scale gas power plant projects.” The latest auction, held by National Grid in December, secured 46.345 GW at a clearing price of £18/kW – over £1 cheaper than last year. Yet, investors deem £35/kW to for new-builds.