Financing

The chapter about financing is the story of a broken promise from the both the government and the EDF. In both 2006 and 2010 they state that the new nuclear generation in the UK should be funded by private companies, willing to invest in the British energy market (Government 2006, 2010¹). EDF accepted this, and entered the British on these terms - no subsidy, solely private investments. Both these promises were changed. On the complete contrary, EDF ended up with a deal securing them 92,50 pounds per megawatt-hour produced for 35 years through CfDs, partly financed by the consumer (Gosden, 2016¹). When the state aid case opened, the European Commission stated the strike price would help EDF reach a dominant position in the British energy market (Commission, 2014²). How did this happen, and which actors were involved in this part of the process?

The barrier regarding finance will in this thesis be delineated to be concerned with two aspects.

Firstly, it is concerned with the negotiations over the CfDs and the strike price. Secondly, there has been discussions regarding the overall price tag of the project. The argument from the respondents opposing nuclear is that other low carbon – preferably renewable – energy sources could produce the same amount of energy as nuclear for the same price.

57 5.2.3.1 Strike price – inevitable or closed doors?

With a change in the previously nuclear-sceptic David Cameron’s mind regarding nuclear, the process continued towards a milestone in the project in October 2013. The government announced provisional agreement with EDF over subsidies for Hinkley Point C, at the cost of 16 billion pounds (Gosden, 2016¹). At the same time, the strike price for 92,50 pounds per megawatt-hour produced for 35 years were introduced. Prime Minister Cameron described the widely-criticized deal as a very big day for our country: the first time we have built a new nuclear power station for a very long time (Wintour, 2013). The subsidies were to be funded by levies on consumer energy bills, in contrast to the initial statements saying that the private sector would handle the bill (Government, 2006, 2010¹). EDF said they planned to retain a stake in the project amounting to approximately 50 per cent. China General Nuclear Corporation (CGN) and China National Nuclear Corporation (CNN) would take between 35 and 40 per cent shared, while other parties would share up to 15 per cent of the stake (Gosden, 2016¹). Along with the new subsidy plan, EDF admitted that the aim to produce energy from Hinkley - firstly by 2017, later modified to 2018 - was far too ambitious, and announced a delay in the plans.

2023 was the year to mark in the calendar, when the first megawatt would be produced from Hinkley Point C, according to EDF.

Emily Cox et al. (2016;54) investigates the strike price-negotiations in their analysis Understanding the intensity of UK policy commitments to nuclear power. One finding is that the consultations over the strike price between the British government and EDF was negotiated behind closed doors. This view is backed by respondent 4, and it points in the direction of heavy influence from the French company. These consultations are a crucial part of the Hinkley Point C-process for three reason. Firstly, it breaks both the governments and EDFs promise saying private investment were to handle the bill. Secondly, it becomes a state aid case in the Commission because of these subsidy plans. Thirdly, the 35-year long contract makes the nuclear investments in the UK safe for EDF. The CfD explicitly means that - regardless of the energy price at any given moment in this period - EDF will get paid the same amount for each - I always said it should be built without subsidy, and it should be built with private money.

And if the French tax payers wont to pay and subsidy something being built in England, then I have no problem. But I think the deal that was done in the end was not a great deal.

- Respondent 5

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megawatt-hour produced (Government, 2015). If the market price is lower than 92,50 pound, EDF will get a compensation, if the price is higher however, EDF will not get anything more than the agreed price.

5.2.3.2 EMR-consultation

It should be underlined that the idea of the private sectors role to run new nuclear was not just a solution presented initially by the Labour government in 2006, but repeated by the Conservative and Liberal Democrat coalition in 2010. The persistence in the view of nuclear energy was a part of the unpleasant agreements the Liberal Democrats had to accept when entering the coalition (Mason, 2010). So, the change of financing the project seemingly does not occur because of a shift of government. In the mentioned Pathway Analysis 2050, it is emphasized that their policies aim to remove unnecessary barriers to new nuclear in the UK without providing public subsidy (Government, 2010¹). They underlined yet again that it is the government’s view is that it is the task of the private sector energy companies to construct, operate and decommission new nuclear plants. Two of the respondents explains that the go ahead for nuclear was a part of the coalition agreement made between the Conservative party and the Liberal Democrats in 2010.

In 2010, the year before the energy market reform was introduced, the UK government held a consultation on the reform. This consultation was not solely about nuclear, but about the entire domestic electricity market. Over sixty actors inside the energy business sector were consulted, whereas EDFs answer was by far the most extensive one (Government, 2010²). EDF answers that they agree with the governments assessment that the current market is not one suitable for decarbonize the electricity sector. Furthermore, they argue for CfDs to be a part of the transition to a new electricity market, as it a mechanism capable of providing stable and reliable revenue stream, making it more encouraging to invest in the British market. The outcome of the consultation was the energy market reform, which in turn led to the CfDs and strike price for Hinkley Point C.

The green movement in the UK came with complaints regarding the position actors from the nuclear industry, including EDF, had during the consultation (Bawden, 2015). Employees from the big six, the biggest nuclear company’s in the UK, were a part of the advisory group which DECC used when making the finishing touches to the EMR. Former chair of the Green Party,

59 Jonathon Porritt, stated that decisions regarding energy were influenced as a whole generation of civil servants in DECC can hardly move without consulting the Big Six first (Bawden, 2015).

Beyond the governments views on the EMR, and the relevant stakeholders’ response to it, there are little evidence of an open debate regarding the strike price for Hinkley Point C. EDFs response in the EMR-consultation largely correspondence with the final reform presented by the UK government (Government 2010², Government, 2015). It is no public consultation documents indicating an open debate regarding the strike price. Following Cox et als (2016) findings, these important debates over Hinkley Point C were not open, they were closed. With EDF at one side and the UK government at the other side of the table. This indicates two things.

Firstly, EDF possessed a potential for uncontested influence. Secondly, there were seemingly no leaks from these meetings, which indicates that EDF had a tight control over the information.

Cox et al refers to elite actor-network relations, when arguing that EDF effectively outmaneuvered the government in this important period of the Hinkley Point C-process (Cox et al, 2016; 54).

In the energy act of 2013, following the consultation, the EMR was introduced. Nuclear is underlined as one of the three low carbon-generation energy sources which is affected by the reform. Energy companies had to apply for CfDs when initiating projects (Energy UK, 2013).

5.2.3.3 Opponents from the inside

It is not surprising that the opponents of Hinkley Point C were outspoken critical to the strike price-agreement. More interestingly is that pro nuclear-actors were in the same boat. George Monbiot, environmental journalist in The Guardian, Mark Lynas, author of Why a green future needs nuclear power, and Chris Goodall, author of How to live a low-carbon life, wrote a piece together in The Telegraph (2015). The message is clear, they are three experts on energy which are pro nuclear, but they are opposing Hinkley Point C. They argue that Hinkley bears all the distinguishing features of a white elephant (Moinboit et al., 2015). Their critique hit hard, and had consequences. In a hearing in Parliament regarding a new nuclear plant in Wales, their position was referred to (Parliament, 2016²). Here it is concluded that the strike price for the new power plant at Wylfa Newydd, where Horizon is the operator, should be built with a lower strike price than the one evident for Hinkley Point C.

Conclusively, what we have, is two broken promises, manifested through negotiations that seemingly did not involve any others parts than the government and EDF. Furthermore, the

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results of these negotiations are used as a reference point for what not to do in the British parliament just a couple of years later, and creates an opposition amongst pro-nuclear actors in the UK. The obstacle mentioned by every respondent – financing – was left behind, and even though the Hinkley Point C-deal was not finalized, the following DECC numbers already included electricity from Hinkley Point C in their energy supply forecasts in 2014, 2015 and 2016 (Government, 2014¹, 2016³, 2017).

5.2.3.4 No subsidy – just PR?

Respondent 4 is the most outspoken criticizer of the change evident between the statement of no subsidy in 2010 and their unveiled plan of CfDs in July 2011. Energy Secretary Huhne, emphasized that they needed a clear decision (…) by the end of the year to avoid damaging investor confidence (Moulds, 2011). Respondent 4 points to the governments initial promise when arguing that a combination of being outmaneuvered by EDF and promising more than they initially knew they could deliver. The respondent states that the government’s announcement to build nuclear without subsidy in both 2006 and 2010 was a PR stunt from the government to sell the idea of nuclear to the public.

The respondent states that no nuclear could be built without public subsidy, and the initial promise was corrupted confidence in British energy policy making. The respondent links this view to an argument of the nature of nuclear compared to the traditional gas firing stations, which – as an opposite to nuclear projects - has low construction costs. This view also became evident in the interview with other respondents. Respondent 5 pointed to this as the core point in the financial barrier of the project, and refers to finding finance as the biggest barrier of the process.

5.2.3.5 Price tag – the value of 37 billion pounds

The estimated price tag of Hinkley Point C has been rising steadily ever since it was initiated.

In 2015 DECC estimated the total cost to be 14 billion pounds (Macalistar, 2016), but just a year later it had more than doubled, when the same department concluded that 37 billion pounds was a more likely price tag (DECC, 2016). The projected new nuclear plant at Hinkley Point is reactors called EPR, which has implications for the price tag. In 2014 there was an extensive consultation to justify these plans. An even larger number of actors were consulted in this round, than in the Pathway Analysis referred to earlier. Greenpeace, NIA and EDF were amongst the actors involved in the consultation, largely concerning responses to the government`s plan to

61 build these new reactors (Government, 2014²). Unsurprisingly, both NIA and EDF are supporters of these plans.

The consultation is in the aftermath of the energy market reform, and NIA concludes they are satisfied with the updated cost estimates. EDF, in their response, states that the new practice would be able to make a significant contribution to security of electricity supply at an affordable price. This view is not shared in the response from Greenpeace. They state that justification needs to be done against the background of potential alternative practices and costs.

Furthermore, they discuss the agreed strike price, which is agreed upon at this stage in the process. They underline that any government concerned with value for money for taxpayer (…) would surely wait the extra couple of years for a considerably cheaper model to come along.

On the contrary, Michael Fallon stated that the Hinkley Point C-project is good value for the money compared to the alternative. In a speech in 2013, the Minister of State for Energy, spoke about how the market reform had made Britain one of the most attractive investment markets for electricity in the world (Government, 2013¹). The Conservative MP underlined he was delighted by the new nuclear investments. However, a central part of his speech is the rising energy pricing. Fallon stated he was very aware that rising energy prices are hitting many households hard at a difficult time. He connects this concern to the idea of an increase in energy security, when saying that the new nuclear program represents a safe, reliable homegrown source of electricity that reduces our reliance on foreign gas imports.

The following year, in March 2014, Energy Minister Matthew Hancock, refers to some of the same aspects in his speech about the UKs energy priorities (Government, 2014³). Hancock underlines the challenge of tackling climate change at the lowest cost possible as one of the major tasks in the future. He highlights nuclear, renewables and shale gas as three of the energy sources with power to cut carbon emissions.

Respondent 5 refers to some of the same thoughts. The interviewee says that seven percent of the UK electricity – for probably not a very different price – could be possible to derive from other energy sources than nuclear. However, the response referred to in chapter 5.1, that nuclear was up until quite recently, something that looked like the cheapest low carbon option, says something about the context the initial decision where taken in. The same respondent points to yet another aspect when explaining why the government channelled their financial support to Hinkley Point C. The interviewee concludes with stating that it is easier for the British

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politicians to “sell” a big project to the British people. The UK like big solutions, so the Government will say: “This is going to be seven percent of UK electricity”.

Big solution makes big headlines, as was the case for Hinkley Point Cs issues regarding financing the plans. The agreement of the strike price and the steadily growing price tag were, however, soon to be overshadowed by another barrier towards finalization the new nuclear power plant at Somerset.