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Now many members of EDF's board and most employees are agreed with this protestor in wanting EDF to drop its doomed Hinkley C project. Site blockade in October 2012. Photo: GLOBAL 2000 via Flickr (CC BY-ND).
Now many members of EDF's board and most employees are agreed with this protestor in wanting EDF to drop its doomed Hinkley C project. Site blockade in October 2012. Photo: GLOBAL 2000 via Flickr (CC BY-ND).
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EDF's Hinkley C decision 'on a knife edge' as problems crowd in

Oliver Tickell

26th January 2016

The EDF board is meeting tomorrow to reach its 'final investment decision' on Hinkley C. It was meant to be a rubber stamp but now it's anything but, as EDF's share price sinks to a new low, unions and employee directors harden their opposition to the project, and projects in France, Finland and China run way over time and cost with severe technical problems and safety concerns.

There is not a single nuclear plant of this type working in the world. There are three sites where EPRs are under construction and they are all in serious difficulty, causing one engineering academic to describe it as 'unconstructable'.

 

Will EDF finance Hinkley Point nuclear plant?

This Wednesday, 27th January, the Board of EDF is expected to take its final investment decision on funding the controversial new nuclear plant at Hinkley Point.

It has been a very long time coming. Indeed at one point EDF was promising that Hinkley Point C would be cooking Christmas dinners in the UK next year.

The meeting was intended to rubber-stamp the project. However, reports in the French press suggest the moderate CFE-CGC union - which has seats on the management board - has challenged the scheme.

In a letter to the board the union raised 15 questions about the project, suggesting it would be difficult to complete on time and that financing it could threaten EDF's survival. When approached by the FT EDF made no comment.

Sources close to the board suggest the concerns go beyond the unions - meaning the company may be unable to decide to go ahead with Hinkley C, and could even drop it altogether. EDF have some very substantial problems which calls their financial health into question:

  • Strong opposition from its own management and employees over costs, risks and deliverability.
  • The second largest EDF shareholder after the French Government has asked for the project to be halted.
  • EDF share price has plummeted over the last year, reaching a new low yesterday, raising questions over how it can finance the project.
  • Ratings agencies threaten to further downgrade EDF debt if the company proceeds with Hinkley.
  • The original French rationale for the project, to 'showcase' the EPR, has now disappeared as, if built, Hinkley C will (probably) be the last one ever built.
  • The French Nuclear Safety Authority regulator is unhappy with EDF/AREVA performance highlighting significant costs for repair and life extension for French nuclear reactors.
  • The Hinkley reactor type, the EPR, has not yet been shown to work. Every EPR project in Europe and China is facing huge cost over-runs and delays.


EDF in trouble

EDF's share price has tumbled questioning whether it has the borrowing power to finance the plant. It has fallen over 50% over the past 12 months, leading to its ejection from the top tier of the French stock market.

The latest damage was inflicted only yesterday with a €10 billion increase in the company's disposal costs for nuclear waste aanounced by Andra, France's nuclear waste agency. The news of the cost increases also triggered a 'credit-negative' warning from credit rating agency Moody's.

Although EDF is 84% owned by the French government, Energy analyst Chris Goodall and the management union now calculate that its stock market capitalisation is less than the cost of the Hinkley plant.

Two of the world's biggest credit agencies have warned EDF it will face a further credit downgrade if it proceeds with Hinkley. Another call on the EDF balance sheet is the need to take over the failing (also state owned) nuclear reactor maker AREVA.

It has got into trouble over the costs of delivering the Okiluoto reactor in Finland (see below). EDF had been hoping that the Finnish Government would take on some of the cost over-runs, but this seems unlikely. The full takeover of AREVA is also expected to be on the Board meeting agenda for 27th January.

Away from its financial health, EDF has some pressing and expensive operational matters. The key ones being the life extension of its 58 reactors in France estimated to cost about €55bn, and the extra nuclear waste costs they face. They are also facing industrial relations issues with unions protesting at their attempts to reduce headcount in the business by 4,000.

One way EDF might manage this process is to sell off other assets. Last October a €10bn fire sale of assets was reported, but earlier this month that was reported as being more like €6bn with some elements of this sell-off already looking problematic.

The problems of the European Pressurised Water Reactor (EPR)

The proposed Hinkley Point plant is an EPR. There is not a single nuclear plant of this type working in the world. There are three sites where EPRs are under construction and they are all in serious difficulty. That may be because it just isn't a very good design, causing one engineering academic to describe it as "unconstructable". Those sites are:

  • Olkiluoto, Finland - expected to be a decade late and cost €8.5bn compared to the original AREVA plan of €3bn and coming onstream in 2009. Even this inflated cost required considerable migrant labour paid at levels well below the minimum wage in the UK. A second reactor planned for the site was cancelled last year.

  • Flamanville, France - expected to be operational in 2018 (but see below) cost €10.5bn compared to the original budget of €3bn and start date of 2012. There are also significant issues at this site because of a failure of quality control over the forging of the main reactor pressure vessel. Until these are resolved - with the possibility of a very expensive refit/upgrade, Flamanville cannot operate.
    The French safety regulator extended this January the timeline for decision on what EDF needs to do on this until the end of the year. In other words there can be little definite progress on Flamanville for another 12 months.
    While this could all be seen as merely worries about costs, the French safety regulator ASN has also been very blunt about some of the safety issues around the forgings, saying the safety problems
    "have not been found naturally by the operator's control systems. In this, it seems relatively worrying and this immediately raises the question of whether there were no other abnormalities that would not have been detected." (rough translation).
    Thus detecting such problems in the UK requires oversight from the Office of Nuclear Regulation which was recently reported to be "in meltdown" and struggling to recruit experienced staff.

  • Taishan, China - issues with the Chinese site are less well documented although construction delays have been acknowledged and an HSBC report on the justification for Hinkley said that the delay was 3 years. It is not clear whether the quicker (but still delayed) build in China could be accomplished with the higher labour conditions in Europe.
    Taishan reactors are also understood to have the same problems as the Flamanville plant with the safety of the pressure vessel as AREVA supplied both.

Hinkley Point

Major players in EDF are opposed to the Hinkley project. The managers' union CFE-CGC has warned that it puts the utility at risk and have challenged the Board with 15 questions about the project on timetable, financing, legal status and industrial benefit. Key concerns include:

  • Building two new reactors in the same place is too 'high risk';
  • There is little benefit to French industry;
  • the subsidy package agreed by the EU faces legal challenges;
  • There is no evidence it can be built on time;
  • What happens if other reactors fail to come online?
  • EDF is strapped for cash, so how will it be paid for?
  • Why are there no other investors interested?
  • What about the legal cases pending?
  • What happens in the UK government decides to look after the consumer interest?
  • Why is EDF teaming up with a Chinese competitor?


Hinkley was originally conceived as a 'showcase' for their EPR reactor. But with the EDF CEO agreeing that the troubles at the other reactor sites are scaring off investors, "the troubled European Pressurised Reactor (EPR) technology that is due to be used at Hinkley is to be ditched by EDF for future projects."

Whilst the UK Government have said the price of power for Hinkley is justified because it is "first of a kind", it is in practice likely to be 'last of the kind' after the poor projects elsewhere.

As Doug Parr, Greenpeace Chief Scientist, observes: "EDF and George Osborne might want us to think Hinkley is the newest and shiniest car in the showroom but they are selling us a clapped out old banger that has failed its MOT three times already.

"The three EDF reactors in Finland, France and China haven't even proved they can work. They use the same technology planned for Hinkley, but all three have faced severe delays and spiralling costs. EDF's managers and employees are completely bewildered as to what makes EDF and the British government so confident that they are willing to bet billions of pounds on fourth time lucky."

Investors are also unconvinced: for all the triumphant talk of Chinese funding of Hinkley last October during the visit from President Xi, the UK government was quietly and embarrassingly admitting that it needed to subsidise nuclear to keep the project alive.

And the one third funding from China was the same as the 30-40% suggested 2 years earlier. In the absence of any real commercial investors - only state backed firms are involved - it is perhaps no surprise that it is reportedly on the National Audit Office list of infrastructure projects at risk and has only a BB rating from the EU in terms of credit risk.

Those UK government subsidies are very substantial indeed, including not only the high proposed strike price for 35 years, but also loan guarantees, accident insurance, protection against evolution of the power system and plant curtailment, protection against wage and fuel cost inflation and socialising the costs of managing the grid with this very large development in the event of its emergency shutdown and the sudden loss of 3.2GW of power generation.

The benefit to UK of this is very unclear: the cost of onshore wind is now cheaper than the proposed Hinkley deal, even accounting for the costs of variability, according to international analysis. And major companies in offshore wind development, Vattenfall and Statkraft, argue that by the time Hinkley is operating - 2025 even at the EDF timetable - they will expect to be building new plants subsidy free.

So why the nuclear obsession - one answer may be the perceived need by the UK's 'deep state' for the continued existence of a nuclear-industrial complex in order for it to be able to maintain its supposedly 'independent' nuclear weapons in the long term - and that the only way to do this, including the submarines that carry Trident missiles, is to keep a full blown civilian nuclear power programme.

For EDF, a project too far

EDF is in no fit state to finance a massive new plant. There are substantial financial uncertainties over cost, timetable and deliverability of a reactor type that has and continues to be problematic elsewhere in the world, including in EDF's own back yard in France, and has not yet been shown to work.

The original rationale for EDF of 'showcasing' their new reactor has now disappeared, leaving only the political embarrassment of cancelling it to prop it up. EDF faces opposition from its management and workforce to carrying it through.

Even if such a final investment decision is taken it may well be that the project falls apart because of the difficulties the EPR faces elsewhere. Meanwhile UK energy policy is in a real-world version of 'Waiting for Godot' as better long term energy options like smart grids and renewable energy are put on hold or abandoned.

"Osborne is not willing to support cheaper energy sources such as onshore wind that could be subsidy free", says Dr Parr. "This defies economic and environmental sense.

"Hinkley will be one of the most expensive objects on earth. This year's school leavers, who can't vote for or against it, will still be paying for it as they approach pension age. Consumers will now pay more on their energy bills in order to subsidise new nuclear power for 35 years. This is after years of promising that no subsidy would be required."

As the former Chancellor Denis Healey famously remarked,  "When in a hole, stop digging." The current incumbent, and EDF, would do well to heed his words.

 


 

Oliver Tickell edits The Ecologist.

This article is substantially based on a briefing by Greenpeace UK.

 

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