UK’s Hinkley Point Nuclear Project Gets Green Light

greenlightPrime Minister Theresa May approved construction by EDF of two Areva 1650 MW nuclear reactors that when complete will provide 7% of the nation’s electricity.

The project is the first in a series of new nuclear reactors which will eventually total 19 GW of nuclear generated power by the end of the 2020s decade.

After a tense month of high wire international politics involving the UK, France, and China, the government has agreed to go ahead with the $24 billion project albeit with significant new safeguards that address foreign investment in the nation’s critical infrastructure.

The UK government imposed a “special share” on Hinkley and all future nuclear new builds which prevent the sale of “significant stakes” in the projects without its consent. The condition is aimed at both EDF, which is a state-owned corporation in France, and China Nuclear General, which is also a state-owned firm.

EDF is supplying the Areva nuclear reactors and is the main engineering procurement contractor (EPC). China Nuclear General (CGN) is taking a 33% equity stake in the project and is also poised to supply some of the major components to it.

Even what many thought would be a US entry to the project turns out to primarily be a benefit to France. General Electric said it will receive $1.9 billion for a contract to supply steam turbines, generators and other equipment to the Hinkley Point project.

The U.S. industrial company purchased the power assets of France’s Alstom last year. Alstom won the competition for the steam generator before it was sold to GE which means it inherits the ink on Alstom’s order book.

PM May’s Review Upset Three Nations

Just as EDF was ready to finally announce its investment decision to proceed with the Hinkley project last July, PM May stopped the process cold with a statement that her new government, rising out of the chaos caused by the Brexit vote, would review it.

Her decision enraged the Chinese government which made a series of undiplomatic statements about relations between the two countries, and split the board at EDF in Paris which was never wholly in favor of the project to begin with.

In the UK unions and firms poised to supply materials, components, and workers to the massive project went on tilt with anger and surprise over the delay.

The UK press has made a big deal out of May’s former role as Home Secretary and her obvious security concerns about China. Is that all there is to it? The cost issues have been with the project all the time so how were these two issues be reconciled to move forward with the project?

The key thing to keep in mind about PM May’s strategy on Hinkley Point is that it is linked to a whole series of political objectives. Some of them are using Hinkley as a springboard for achieving other objectives. Here’s a speculative short list.

The Buck Stops Here May’s top objective is to prove to the British people that she is a capable leader. The American analog is President Harry Truman’s dictum, “the buck stops here.”

This objective transcends the scope of the Hinkley Point effort because the waves from this rock in the pond will travel to distant shores. She emerged at PM after the rest the leadership of the conservative party collapsed following the Brexit vote. Her political objective to earn public trust. She will do so by being decisive as well as cautious in making big decisions.

Costs Count May inherited the Hinkley project from a failed Conservative Party PM, David Cameron, who’s political misjudgment brought about the Brexit vote and all the negative consequences coming after it. Simply endorsing anything with the significance of Hinkley that was initiated by him wasn’t going to fly.

No political leader worth their salt is going to just roll over on a $24 billion nuclear project, especially one coming to the table with Areva’s track record in Finland and France of schedule delays and cost overruns.

May hasn’t said it yet, but it is likely that an unannounced element of her decision to go forward with Hinkley includes a side agreement that has clawback provisions for EDF, aka the French government, to make good on cost over runs, etc. It won’t matter who the next President is in Paris. They will need to be prepared to write checks to cover their markers.

Accountability for China May will present a firm position in the face of Chinese bullying at the G20 summit to send them a message that the UK won’t be pushed around over something as important as the next 100 years of electricity generation in her country.

May wants to do business with China, but on her terms, and not theirs. This means she will hold them accountable for the components they propose to supply for Hinkley and she will make success with Hinkley a precondition to build Hualong One reactors at two other UK sites.  She will make them wait for a decision to allow them to build Bradwell until Hinkley is in revenue service.

Bottom line for China – the investment money is fine, but there is no free ride to making the UK nuclear program a showcase for Chinese technology. PM David Cameron’s promise to “facilitate” the review of the Hualong One through the Generic Design Assessment is a non-starter. The Chinese will have to prove the safety of every rivet and welded seam to the get approval to build one in the UK even if they successfully complete two in Fujian in China.

Consensus for Security As predicted, May turned over the assessment of the security issues to a high profile panel of experts within the government which speedily issued a report laying out recommendations for the conditions of China’s engagement with Hinkley and two other nuclear power stations. The key provision protects the UK from having the nation’s reactors sold off to foreign interests.

This report and its implemented key recommendation shows the British people, EDF, and China that she is not just shooting from the hip, but that there are substantive issues which can be addressed in the UK’s bilateral relations with China.

Timing is Everything  As predicted May made her decision before the end of September.  She didn’t let the issue fester. This near-term combination of careful consideration, application of accountability for results, and decisiveness are all qualities that send a message to the British people that she is a capable leader worthy of their trust.

May’s focus on Hinkley won’t end her scrutiny of the UK nuclear new build. She’s likely commission a complete review which will assess not only the construction of new full scale conventional reactors, but also explore the potential for small modular reactors (SMRs) and development of advanced reactors like GE-Hitachi’s PRISM.

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