In the troubled history of Hinkley Point C, the resignation of Thomas Piquemal in 2016 ranks as a footnote, but he deserves a heroic mention in the week EDF, developer of the nuclear power station in Somerset, announced yet more cost overruns and delays.
Piquemal was the EDF finance director who took the dissenting view in the French boardroom that rushing to sign a contract with the UK government to build Hinkley would be a risk too far for his debt-laden employer. The energy company’s financial future could be put in jeopardy, he was reported to have said.
In truth, there were other reasons why EDF ended up being fully nationalised by the French state in 2022 – the cost of repairing domestic nuclear stations, and being forced to sell energy at a loss to subsidise French consumers’ bills – but Hinkley has been a financial albatross that has only become heavier. Back in 2016, the plant was meant to cost £18bn; the latest estimate is up to £35bn in equivalent terms and more like £46bn in today’s money. Vraiment, Piquemal was right.
Thus one cannot be surprised that an entertaining diplomatic row is brewing over Hinkley, with French officials telling the Financial Times that the UK might wish to contribute the odd billion to fill the budgeting hole. One argument says that, since EDF is also meant to be taking a stake of up to 20% in the replica Sizewell C plant in Suffolk, the two financing issues could be wrapped together.
Another says the UK worsened the financial pain in Somerset when it ditched the Chinese state firm CGN (one-third owner of Hinkley) as an investor in Sizewell. A disgruntled CGN, which owed its presence to the grotesque love-in with Beijing under David Cameron and George Osborne, is now refusing to invest more in Hinkley.
But, unusually, the UK’s hand looks excellent in this developing quarrel. As Piquemal’s warning demonstrated, EDF understood exactly what it was signing in 2016. The bargain was simple: the UK would buy Hinkley’s output for 35 years on inflation-linked terms that, at the time (but not now), were seen as wildly generous; in exchange, the developers were solely responsible for cost overruns during construction.
Nobody has ever doubted the watertight nature of the contract. EDF’s managing director at Hinkley made a video this week to explain the overruns and delays and said: “None of this affects British taxpayers or consumers.”
One could imagine a situation in which the UK agreed to lend a hand by buying an equity stake in Hinkley on commercial terms; even with higher costs, the projected internal rate of return over the long life of the plant is still 7%-ish. But there appears to be no obligation for the UK to negotiate.
Do Sizewell’s financing needs complicate the real-world politics? Possibly. The UK wants to attract outside capital to the Suffolk project and a proper cross-channel bust-up wouldn’t help the cause since EDF, aside from being a minority investor, will be a major supplier at Sizewell (but, not, as at Hinkley, the developer itself).
But, again, the UK has decent cards: the two projects have different funding models (UK billpayers are exposed to cost overruns at Sizewell) and the French nuclear industry presumably still wants the multibillion-pound orders for vital kit at Sizewell, including the reactors.
The deeper question over Sizewell is whether it is value for money if it, too, will end up costing £40bn-ish. Short answer: if the UK is committed to building 24 gigawatts of nuclear capacity by 2050, or enough to meet a quarter of national electricity demand, there isn’t a ready alternative today. But Hinkley’s budget woes should be kept separate. In Somerset, EDF is on the hook, just as it was warned.
