More repercussions from Hinkley delay

9 August 2016

The UK government said on 3 August that it will not have to pay compensation to Electricite de France (EDF) if prime minister Theresa May decides to abandon the Hinkley Point C NPP project because there is no signed contract.

“The government is not responsible for any of the project costs until a contract is signed for Hinkley,” the Department of Business, Energy and Industrial Strategy said in an e-mailed response to questions from Bloomberg.

The Times reported on 1 August that France was preparing to demand €3bn ($3.4bn) in compensation if the UK pulled out of the project. The EDF had voted to proceed with development of the Hinkley project, having already spent GBP2.5bn ($3.3bn) preparing the site. The GBP18bn project was seen by business groups as a vote of confidence in the UK following its decision to leave the European Union. However, just hours after the EDF board’s approval, the UK government cast doubt on its future by saying it would review the project.

The UK government had agreed to pay GBP92.50 for every megawatt-hour of electricity produced from the station for 35 years, about twice the current rate. This is payable only after station is built and generating. The plant would provide 7% of the UK’s electricity and take 10 years to build.

The delay is also being seen as a test of Prime Minister May’s commitment to   the expanded ties with China promised by her predecessor, David Cameron. China General Nuclear Power Corp (CGN) had agreed to invest GBP6bn in the NPP, potentially paving the way for it to build a Chinese-designed reactor later at the Bradwell NPP site. The Chinese government has urged the U.K. to come to a decision as soon as possible.  “This is an important test - not just some ordinary test - of the new China-UK relations after the UK’s exit from the European Union,” said Ruan Zongze, vice president of the China Institute of International Studies, a research group run by China’s foreign ministry. “The result of their review will show the new government’s attitude about the Chinese investment: Are they still welcoming? Or not any more?”

“Success in the UK market will deliver a message to many other markets, developing or developed, that China’s nuclear technology is trustworthy,” said Helen Lau, an analyst at Argonaut Securities Asia Ltd. If the UK cancelled the project, it would “hurt CGN and China more on its confidence in its own nuclear power technology than real financial losses.” China’s official Xinhua News Agency published a commentary saying China cannot understand is the ‘suspicious approach’ to Chinese investment that came from nowhere in making the postponement decision. The Chinese Communist Party-run Global Times said 3 August that if the UK turned a “blind eye to China in this delay” it could hinder efforts toward a trade pact. “Any free trade deal would take years to negotiate, which requires stability and sustainability in bilateral ties,” the Global Times said. “There are numerous examples of FTA negotiations that have been damaged by cooling bilateral relations.” 

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