Britain’s energy landscape just flipped to nuclear

Last week, everything changed: Hinkley Point nuclear power station got approval. We’ve been keenly watching the energy story in Exponential Investor for quite some time, so it’s only fair to give this hugely-important issue its own article. For an individual plant, it’s by far the biggest political story in energy for nearly a generation.

You can read the facts elsewhere – and in this article, I’m going to concentrate on the analysis.

In short, the Hinkley decision is a piece of catastrophic energy policy stupidity. It’s not merely bad, it’s dreadful. It’s a many-layered onion of dreadfulness, which I will now attempt to unwrap.

Am I just anti-nuclear?

No, I think that nuclear power can have a role to play, so don’t expect me to go on an anti-nuclear rant. While I believe there are serious issues with nuclear – notably the storage of long-term, high-level waste – I don’t think on principle that we shouldn’t have nuclear in the energy mix. In particular, there’s a case for continuing to explore a range of innovate nuclear technologies.

So why’s Hinkley such a bad decision?

To unwrap that, we need to look at why it was considered in the first place. The government doesn’t like borrowing. It looks bad. To replace our aging nuclear fleet on a like-for-like basis, we’d have to borrow an almighty amount of money. Therefore, the UK has turned to EDF (essentially a bit of the French government) to build a reactor. Incidentally, EDF will be using a design that’s licenced from Areva (that’s essentially another bit of the French government). As none of the above parties have got any money, they’ve all gone cap-in-hand to China General Nuclear (essentially a bit of the Chinese government).

As you can imagine, this all results in a decision in which politics can’t be separated from economics. And, oh my! – what politics they are. Britain is punch-drunk from Brexit and is trying desperately to find a credible place in the world. The last thing it can afford to do is upset the French and the Chinese. We need to placate the French – to retain EU market access, and bank passporting. We need to placate the Chinese – to get money for everything else we can’t afford to invest in, and to get a post-Brexit trade deal.

Amid this almighty Brexit muddle is the economic and technical case for Hinkley – or lack of it. To get an idea of where we are at, imagine the following metaphor. You’ve gone to a dinner party and tipped a bottle of wine on your boss’ rug. It’s ruined, so you have to replace it. The quote comes in, and it’s absurdly overpriced. But quibbling could lead to a pretty terminal lack of career prospects. And so it is with Hinkley.

The deal isn’t just bad, it’s ludicrous. As followers of Exponential Investor will know, we’re entering an era of rapidly-falling energy prices. This is due to technological advancements in renewable energy – notably solar. On this backdrop, we’re already paying twice the going rate for energy from Hinkley. I say “we”, because the government has generously decided that bill-payers will be the ones left carrying the can for this project. You may have read £92.50 per MWh in the press. That figure is huge – already nearly double what I pay for Economy 7 electricity at night, even as a retail customer. But in fact, the price is now nearly £100 because of inflation. It will continue to rise for 35 years.

What’s wrong with Hinkley’s technology?

Put simply, it’s on the wrong side of history. While renewables are dropping in price rapidly, and increasing in sophistication, Hinkley locks in a technology that’s fundamentally outdated. The European Pressurised Reactor (EPR) is a variant of decades-old technology, dusted off for a new era. The specific EPR design concept has never been deployed successfully in its current form anywhere in the world, despite several attempts. To my mind, there is still a real question mark over deliverability. Every other EPR build has been mired in delays and cost overruns. Despite the deal being approved, it’s not beyond the realms of possibility that some excuse may be found to tap up the UK for even more money. Some would additionally argue that there’s still a risk the project may fail entirely.

What could we buy instead?

I’ll try and boil this down – because you could write a book on it. But put simply, we could have a mixture of solar, wind, and batteries instead. Obviously, the UK isn’t a perfect location for solar, but we’re already becoming a world leader in offshore wind. And if we were to redistribute the excess cost of Hinkley into energy storage, we’d be on the right path to making our renewable power resilient.

That doesn’t mean to say we don’t have any other viable options. Indeed, at the price we’re paying for Hinkley, we could even look at building fossil fuels with carbon capture and storage (CCS). I’m certainly no fan of CCS, but at least developing expertise in the technology would have some major knock-on advantages. Firstly, we’d build a leadership position in the field, and this is exportable. Secondly, we’d be forging a path towards two key deployment use cases.

In the short term, we’ll need to decarbonise things like cement kilns, which can’t be swapped for solar panels. Using CCS to stick the carbon dioxide in the North Sea is pretty much the only way to do this – unless we change the way we make cement. In the longer term, we’re probably going to have to suck yesterday’s carbon out of the atmosphere. You might think this “carbon dioxide removal” is tree-hugging nonsense, but it’s already enshrined in the Paris Agreement.

What are the long-term implications of Hinkley?

Hinkley’s impact extends far beyond a single dot on the coast. It’s a stepping-stone to a larger, deeper involvement with China – notably the nuclear power station proposed at Bradwell. This project is like Hinkley’s evil twin. Hinkley is funded by the Chinese, but their direct involvement is limited. By contrast, China’s involvement in Bradwell will be way deeper as it’s expected to be a Chinese design. And that’s worrying.

Let’s get this straight: the Chinese government is not a benign force. It’s exerting repressive control over local media; harassing, jailing and even killing dissidents; suppressing ethnic and religious minorities; expanding militaristically in the South China Sea; and it has an inglorious track record of corporate hacking and spying. Specifically on nuclear issues, a China General Nuclear employee is already pending trial in the US on charges related to industrial espionage of nuclear technology.

A long-term energy partnership with China poses serious risks to UK national security. We’re already far too reluctant to stand up to the obvious abuses of power by the Chinese authorities. We’ve been turning a blind eye as it turns from an economic powerhouse into what is rapidly looking like a 21st-century empire.

Even if we were to accept Chinese investment into hard infrastructure (such as roads) it does not logically follow that we should accept investment into assets, where these have even the remotest capacity for interruption in case of a dispute.

If Hinkley (or its siblings) were operated in a negligent or malicious fashion, what could we do? China is a far-flung, nuclear-armed, economic titan. Even if we felt that a shutdown of the plant was justified, it would be nigh-on impossible (while keeping the lights on). We could perhaps take over the plant by force, but that would pose a significant risk of retaliation. This reply could come through economic, legal, or military means. Such a payback might be highly indirect, such as by supplying weapons to our enemies.

We have done something by approving Hinkley that is comparable to buying a gun (for twice the market rate) and then handing it to an emerging gangland boss. Whatever our short-term reasons for doing so, this decision is likely to play out very badly indeed.

Category: Energy

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