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China joins EDF in UK Hinkley Point nuclear deal

The UK has admitted China into its power-generation market, allowing it to take a stake in the Hinkley Point nuclear plant

In August a deal signed by EDF and a Chinese state-owned consortium, led by China General Nuclear Corp (CGNC), gave China a 33.5% stake in the reactor – which will be the first to be built in the UK in decades.

Hinkley is expected to be followed by more nuclear plants, including a second at Hinkley Point, two more at Sizewell, and then a reactor based on Chinese Hualong technology at Bradwell in eastern England - which would be the first Chinese-designed, built and operated reactor in the west. China is expected to take stakes in Sizewell but a controlling stake at Bradwell.

Building a Chinese reactor in Britain is a goal of the global Sino-French state-owned partnership that EDF and nuclear engineering firm Areva are developing with the Chinese state consortium, which also includes the Areva-designed Taishan 1 and 2 EPR reactors in China. The alliance has received a significant boost from the strong support shown by the UK government. Finance minister George Osborne says the £24.5bn Hinkley project, would “open the door to unprecedented co-operation” between the UK and China on more nuclear stations. “No economy in the world is as open to Chinese investment as the UK”, he says.

However, the deal is causing concern among some, who believe it may give Beijing significant influence within Britain's infrastructure, which could put national security at risk. This comes on top of concerns over the technical reliability of the new type of reactor being used, and the commercial terms signed up to by the government in order to get the project off the ground.

Critical mass

China is in a good position to build reactors, based on the experience and expertise it is building up in its home market, where 28 reactors are being built – 42% of the world’s total new-build. Add to this EDF’s dominant global position, and the two are clearly well placed to take on the UK project.

But even with full state backing, nuclear construction progress in China has not been hassle free, and most worryingly for the UK, significant faults have recently been found at the Taishan 1 and 2 Areva EPR reactor pressure vessels – the same third generation Pressurised Water Reactor (PWR) type to be used at Hinkley and the current mainstay of the Sino-French alliance.

In Europe, there have been similar problems. In Finland, a €2.7bn compensation claim against Areva is being pursued for delays to the Olkiluoto EPR nuclear plant and Areva is making a counterclaim for €3.5bn. The project’s turn-key price was €3bn in 2005 and today the price is estimated at €8.5bn, with a construction time of 13 years and rising. Finland is not proceeding with any more of the reactors that it had planned. There are also problems with building the EPR at Flammeville in France. EDF has now intervened, taking over Areva’s reactor arm, and is working on an upgraded EPR that it hopes will be easier and cheaper to build.

The delays and technical problems have made potential investors wary of joining EDF’s UK consortium for a similar project in Britain. China General Nuclear Corp and China National Nuclear Corp had been the only companies left interested in taking a stake, after possible minority investors, such as Saudi Electric, dropped out. EDF’s chief executive Jean-Bernard Levy recently noted that, unlike other potential investors: "[CGNC] still has confidence in the EPR, like us." Other partners could come in later but only after the project gets under way.

Commercially unsound?

Another major objection to the deal is its commercial terms. The UK government has committed to pay the consortium a price of £92.5/MWh for 35 years from the date of completion, forecast at 2025. This is twice the current price of power on the UK market, and represents such a long period that there are real concerns that other forms of energy will have a low chance of being developed whilst the contract was in force. Other industry figures, including the chief executive of National Grid, Steve Holliday, believe large baseload power plants are no longer needed at all, with renewables likely to provide future baseload in a more distributed grid with flexible centralised back-up for peak demand or renewable supply slumps.

However, the government has argued that the high price covers a likely steady rise in energy prices over time, and its lengthy duration is required to enable companies to have the financial security to proceed with such a capital intensive project. In a BBC interview, Energy Secretary Amber Rudd said that while nuclear as a source of electricity was not “cheap”, it did offer “value for money… It’s a lot of money compared to coal, but we want a source of low-carbon electricity”, she said. “This has to be part of the mix.”

Despite the investor partnership being state owned, the UK government has also provided loan guarantees. But again proponents argue that an initial £2bn guarantee, which could rise if EDF meets certain conditions, was necessary to bring the plant negotiations to a head, leading to the final agreement.

Security risk?

A number of senior figures claim the UK government is entering into a partnership with China without a proper examination of prospective threats. "No one else in Europe would cut this deal," said Dr Paul Dorfman of the Energy Institute at University College London. "America wouldn't dream of letting China have such a part in its critical national infrastructure. The idea the UK is prepared to do so is, frankly, astounding."

Driven by the need for capital, security concerns may have been put to one side. "The Treasury is in the lead and it isn't listening to anyone — they see China as an opportunity, but we see the threat," a security source told The Times. But Ms Rudd brushed off the concerns, highlighting tight UK regulation: "The Chinese can come and engage with us, but it is our regulations, our high standards that they will have to live up to… It is right that we are a confident, outward-facing country inviting investment to the UK so that we can rebuild our nuclear industry."

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