Uncertainty abounds after Britain voted for Brexit amid concerns over implications on foreign direct investment, not least in the UK energy sector. The very future of the Hinkley Point nuclear power project is up in the air, as observers warn that the departure of UK prime minister David Cameron might give EDF a pretext to pull the plug on financing.
Aurora Energy Research warns of “short-term turmoil” due to a leadership struggle for Nr.10 and the prospect of a general election before year-end. “Coupled to the machinations of party politics will be a massive legislative program to replace EU laws,” it said in a note, warning that “These profound legislative changes re likely to delay spending and may increase the cost of financing capital-intensive projects that the UK energy sector needs.”
Others are more outspoken and warn that if Cameron was to be replaced by Boris Johnson this might give the French state-owned utility EDF a good opportunity to reappraise the 3.3 GW Hinkley Point C project – and possibly abandon it.
Gas new-builds – ‘Plan B’
Financial close on Hinkely Point C may, or may not happen in September but the delayed FID has already severely pushed back the start-up date. The reactor was initially meant to start up in 2017 but is now unlikely to produce any electricity before 2025.
If built, the two EPR reactors in Somerset would have an installed capacity of 3,200 MWe, enough to cover 7% of Britain’s power needs while avoiding imports of 50 TWh of natural gas.
If not, new-build gas combined-cycle power plant would have to fill the capacity gap. However, UK’s independent 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.
Trying to calm the waters
In a first reaction to Brexit, EDF chief executive Jean-Bernand Levy was keen to calm the waters, saying the utility had no immediate plans to abandon the project. With estimated costs amounting to €24 billion (£18bn), Hinkley Point C would be the world’s most expensive nuclear power station ever built.
Financing might be squeezed following the plunge of the pound versus the dollar, but Mr Levy tried to play down this short-term turmoil on financial markets. “We are in a neutral situation with regards to movements that could happen on the [foreign exchange] market,” he told French media.
Emanuel Macron, France’s economy minister said earlier the French government would be “completely uncommitted” to the Hinkley project, suggesting that state-owned EDF was struggling to finance its 66.5% stake in the project.
In May, EDF decided to delay a planned financial investment decision (FID) on Hinkley, saying it would need to further consult its works council. The trade union-dominated body commented on Friday, threatening it would take legal steps unless EDF released further documentation on the project. CGT, France’s biggest union, wants EDF to push back financial close on British nuclear project by at least three years, claiming that going ahead now would be close to “financial suicide.”