How Hinkley delivers a bad deal for everyone

September 15, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

It’s rare that a deal leaves every side worse off. Yet that’s the case with Britain’s newest nuclear power plant, which belatedly received government approval on Sept. 15. Consumers, investors and Britain itself are all likely to end up bathed in toxic waste.

The economics of building Hinkley Point C for 18 billion pounds haven’t changed since last year, but they’re still not good. British energy users will effectively pay the difference between what operator EDF has been promised per megawatt hour, and the going market price. In September the UK government put that at 37 billion pounds over the contract’s 35-year life, or 15 billion pounds in today’s money.

It’s not much better for the French group. Should all go to plan, EDF could make a return on investment of around 9 percent a year, it says. But similar plants underway in France and Finland have run wildly over time and over budget.

Britain loses in another way too, because the new government is using Hinkley to launch a wide-ranging review of its authority to intervene in foreign takeovers of “critical infrastructure”. Over a decade ago, lawmakers deliberately took politics out of mergers. Interventions have been limited to matters of national security, media plurality and the stability of the financial system. The government now points out that other “major economies” have more stringent controls on foreign investment in infrastructure projects. That misses the point that Britain’s appeal has been that it is more open than places like France, China and the United States.

Why go ahead with such an unappealing project? The answer is Brexit. Voters’ decision to leave the European Union means Britain needs friends prepared to sign favourable trade deals. Scrapping Hinkley would poison the water for future talks with China, which is putting up a third of the cost of the project. Meanwhile, since almost half of Britain’s gas comes from continental Europe, developing more home-grown nuclear power may strengthen Britain’s hand ahead of negotiations over access to the single market.

Seen that way, going ahead with Hinkley may deliver a short-term benefit in the next couple of years, as Britain’s post-Brexit arrangements are hammered out. But the long-term disadvantages and financial costs will, like nuclear waste, contaminate the country for decades.

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