3
Jul

EDF warns Hinkley Point could cost extra £1.5bn – Financial Times

Britain’s Hinkley Point nuclear power station could cost £1.5bn more than initially expected, according to estimates by French energy group EDF that come less than a year after the project received final approval.

EDF said on Monday that the estimated cost of the project was now £19.6bn following an internal review.

But the French company also warned that the project could be further delayed by up to 15 months, a move that would see the completion date extended long past 2025 and add another £700m to the final bill, pushing the total to more than £20bn.

Vincent de Rivaz, outgoing head of EDF Energy, said that the new estimates and potential delay will have “no impact” on the Hinkley Point contract signed between the company and the UK government.

Nonetheless, the admission will add further fuel to criticisms within EDF that the project is unmanageable and overly risky for a company already weighed down by high levels of debt.

EDF now expects a rate of return of 8.5 per cent on the project, half a point less than was previously the case. Potential delays could push that down further to 8.2 per cent, the company said.

The temptation that some may have to link what has happened to other projects [at Flamanville and Olkiluoto in Finland] should be resisted

Hinkley Point has been a controversial project, with critics railing against its high cost. In June, the UK government spending watchdog warned that electricity consumers face paying £30bn above market prices for a “risky and expensive” deal to build Hinkley Point.

Under a deal reached in 2013, EDF and its partner CGN of China will be paid at 2012 prices — £92.50 per megawatt hour of electricity produced by Hinkley — for 35 years, a fixed rate that is about twice current wholesale prices.

However, Mr de Rivaz said the fact that increased construction costs would be shouldered entirely by EDF and CGN highlighted the advantages for the UK of a deal that shields taxpayers and consumers from construction risks.

The majority of the EDF unions last year also expressed their opposition to the project in its current form, warning that it risked overstretching the company’s fragile balance sheet.

Some engineers and managers tried to halt the project, and the company’s chief financial officer quit last year, citing fears that the large investment could bring down the company.

The revised budget is also the latest in a succession of setbacks for the European Pressurised Reactor technology planned for Hinkley. It was developed by French and German engineers and designed to propel a new wave of growth for the French nuclear industry.

An EDF plant at Flamanville, northern France, is six years behind schedule and costs have overrun by €7bn.

Another EPR project in Finland — being built by Areva — is a decade late and more than €5bn over budget.

Mr de Rivaz insisted that EDF remained committed to its target of producing electricity by 2025 but was being honest about the risks of delay. The schedule to start construction of the first reactor in mid-2019 remain intact, he added.

Preparatory work, including the laying of tunnels to carry pipes and cables around the site and construction of a jetty to receive construction material by ship, was going well, he said.

“The temptation that some may have to link what has happened to other projects [at Flamanville and Olkiluoto in Finland] should be resisted,” said Mr de Rivaz. “It has nothing to do with them.”

However, critics seized on the cost increase and potential delay as more evidence that nuclear power was too expensive and risky.

John Sauven, executive director at Greenpeace UK, the environmental group, described the news as “another damning indictment of the government’s agreement to go ahead with this project”.

“This year’s school leavers will still be paying for Hinkley when they approach their pension age. And now it looks like they will be paying for the most expensive object on earth for even longer.”

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