Hinkley C escalating costs – do we have too many LEP eggs in the Hinkley C basket?

First, the latest report:

“Hinkley Point C in Somerset will cost £1.5bn more than planned, says developer EDF, and completion could be delayed by 15 months beyond the 2025 target date. In one sense, this news lacks any element of surprise. EDF only seems to build nuclear reactors that are late and over-budget, as witnessed in Finland and on its own patch at Flamanville in Normandy.

Yet the timing of EDF’s “clarifications” is a shock. It is very early in the life of this £18.1bn (now £19.6bn, possibly rising to £20.3bn) project to be recasting the numbers. The tricky stages of construction, like pouring the right mix of concrete, lie ahead. The additional costs relate to mundane matters, such as “a better understanding” of UK regulators’ requirements and “the volume and sequencing of work on site”.

These are planning areas in which EDF would surely have made allowances for uncertainties. That all that slack, and more, has been used up is puzzling. Sceptics within EDF who argued that Hinkley is too big and too financially risky will feel vindicated already. EDF’s projected rate of return on the project was never high at 9%; now it is down to 8.5% and will fall to 8.2% if the delays materialise.

Still, it’s a French problem, right? Didn’t the UK government insulate us by making EDF and its Chinese co-financier shoulder the construction risks? Wasn’t that the trade-off for the UK guaranteeing to buy all Hinkley’s electricity for 35 years at twice the current wholesale price?

Well, yes, that’s how the contract is structured, and EDF’s UK boss was full of reassurance on Monday that UK taxpayers remain protected. But no contract of this size is ever so straightforward, as the National Audit Office pointed out in its blistering report last week.

“If the HPC [Hinkley Point C] project or developer runs into difficulties, the UK government could come under pressure to provide more support or take on additional risk, particularly given HPC’s potential importance to ensuring energy security,” said the NAO.

That dire circumstance remains some way off, but it can’t be ignored. What if real engineering problems follow? What if EDF’s projected returns fall to 7%, which would be closer to the company’s cost of capital? Would EDF seek better terms knowing that Hinkley is scheduled to provide 7% of our electricity?

“The [UK] government will hold a stronger negotiating position if it maintains alternative ways of ensuring energy security if HPC runs late or is not completed,” said the NAO. That advice was sound last week, now it looks prescient.

It is bad enough that UK consumers are locked into this “expensive and risky” project, as the NAO called Hinkley. It would be calamitous if we end up being bullied into paying more. Ministers need to draw up a proper contingency plan – starting now.”


And why does this matter to us in Devon? Hinkley C is Somerset isn’t it? Ah, but our Local Enterprise Partnership covers Devon AND Somerset, so masses of money that used to go directly to our councils for local projects is pouring into their (unaccountable and non- transparent) coffers.

And because these are the projects our LEP is putting OUR money into on the assumption everything is hunky-dory:

Bicton (Cornwall College) – this project is a dedicated Skills Centre for Engineering and Construction, including nuclear.
£300,000 from Growth Deal.

Bridgwater – HPTA – National College for Nuclear (Southern Hub). This project is to base the National College for Nuclear (NCfN) – Southern Campus on Bridgwater College’s newly developed University Centre in Cannington.
£3 million from Growth Deal

Exeter College – a Centre for Advanced Industrial Automation to address the LEP priorities for the HPTA, Hinkley Point C supply chain and the New College for Nuclear advanced manufacturing and Business Incubation.
£3 million from Growth Deal

South Devon College – The project is a suite of small capital investments that will enable the College to extend and enhance the range and quality of our provision to meet the direct and indirect skills needs for the new nuclear development at Hinkley and address the replacement skills resource needs locally.
Already received and spent £213,980 from Growth Deal

Yeovil College – Addressing skills gaps in Construction/Civils and Facilities Management
Provisional allocation of £637,500 from Growth Deal.
Of which our LEP says:
“This project forms part of the Nuclear South West strategy – a strong partnership between three south west LEPs (Heart of the South West, West of England and GFirst) the nuclear industry, local authorities, academic and skills sectors and business support agencies – generating £55bn of nuclear opportunities over the next decade”

The above does NOT include the massive numbers of houses to be built in the Hinkley C area by companies such as Midas (LEP board member).

Check out the nuclear and other interests of LEP Board Members (including EDDC Leader Paul Diviani and non-Board member Mark Williams, EDDC CEO) here: