A full month after the British government decided to review Chinese involvement in the Hinkley Point C nuclear power project, the howls of outrage just won’t die down. Insisting any security concerns over Chinese involvement are groundless, China’s state news agency, Xinhua, warned Britain would be “foolish” to jeopardise its relations with Beijing by suspending the project. China’s ambassador to London declared the delay had brought bilateral relations between the two countries to “a crucial historical juncture” and called on the British government to “come to a decision as soon as possible so that the project can proceed”. Last week China’s president, Xi Jinping (習近平), even gave a speech in which he insisted China’s international investments deliver “a solid sense of gain”.
Sino-British ties at ‘crucial juncture’ after delay in Hinkley Point nuclear plant deal, warns Chinese ambassador
All these protests miss the point. They all assume that the reason for the British government’s review is concern about China’s investment. But there is a far greater objection to Hinkley than that: it is a deeply flawed project, driven more by political vanity than economic rationale, the numbers of which make no sense whatsoever. The new British government of Prime Minister Theresa May would be right to pull the plug, regardless of any Chinese involvement.
Warnings that Beijing could turn out Britain’s lights if a future prime minister were to meet the Dalai Lama make eye-catching headlines. But the evidence that London’s review of Hinkley was prompted by security concerns is remarkably thin. It consists largely of a blog post on a right-wing website written last October by the director of an education charity who was later appointed May’s joint chief of staff. In the post, he cited an article in The Times newspaper, claiming unnamed “security experts… are worried that the Chinese could use their role to build weaknesses into computer systems which will allow them to shut down Britain’s energy production at will”.
Maybe, but that should be the least of London’s concerns over Hinkley. The real problem with the project is its cost. The new nuclear power station was conceived in 2008 in order to help the British government meet its aim of reducing carbon emissions by 80 per cent by 2050, an aim that was itself a vanity project intended to showcase Britain’s supposed environmental leadership. However, the chosen design, the European Pressurised Reactor promoted by the French state-controlled company EDF, remains an untested technology. The first EPR project to go ahead, a power plant in Finland, is currently running nine years behind schedule and more than 100 per cent over budget.
Construction costs for Hinkley are estimated at
£18 billion (HK$184 billion), which would make it by far the most expensive power station in the world. But that’s only part of the objection. In order to persuade EDF to shoulder the construction costs, in 2013 the British government guaranteed that Hinkley would be able to sell its electricity to the grid at a index-linked price of £92.50 per MWh. At the time, oil was trading at US$120 a barrel, and Britain’s wholesale peak power prices were as much as £80 per MWh. Since then oil and gas prices have tumbled and British electricity prices have slumped to £40 per MWh – less than half the cost of power from Hinkley.
With inflation forecast to have pushed the project’s index-linked guaranteed price up to £120 per MWh by the time it starts generating in 2023, the government itself reckons that subsidising Hinkley’s electricity would cost taxpayers £37 billion over the lifetime of the guarantee. To put that sum into perspective, it is double the cost of replacing Britain’s ageing fleet of intercontinental ballistic missile submarines with an entirely new next-generation nuclear deterrent. Hinkley will produce the world’s most expensive energy by a country mile.
Despite boasting such a gold-plated guarantee, the project has still run into financial trouble. The eye-watering cost of developing the EPR has hammered the share price of EDF, which has fallen 80 per cent since 2008 when the project was conceived. As a result, Hinkley’s
£18 billion construction cost now almost outweighs EDF’s entire market capitalisation of 22 billion euros. In other words, EDF’s management has bet the entire company on this one project. That sober realisation was behind the decision to bring in the state-owned China General Nuclear corporation as a 33 per cent co-investor. Even so, so far this year fears that the cost of building Hinkley will bankrupt EDF have triggered the resignations in protest of two of the French company’s directors, including its finance director.
In short, the Hinkley Point project would be a horror show with or without China’s involvement. But perhaps the saddest element of the whole sorry affair is it is highly likely Hinkley would do nothing at all to reduce carbon emissions. By saddling energy-users in Britain with wholesale electricity tariffs on average some 17 per cent higher than market prices would otherwise dictate, the Hinkley subsidy would provide an additional incentive for heavy industrial users of power to relocate their operations to countries where electricity is cheaper. In practice, that means countries like China or India where 70 per cent or more of electricity output is generated in coal-fired power stations, rather than in relatively clean gas-fired plants as in Britain. As a result, on a global basis – and it is the global basis that matters for climate change – it is likely Hinkley Point would actually push up, rather than reduce, carbon emissions. The British government would be absolutely right to pull the plug on the project, regardless of the howls of protest from Beijing.
Tom Holland is a former South China Morning Post staffer who has been writing about Asian affairs for 20 years