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Hinkley falters?

The Government surprised many with its 11th-hour announcement to review the decision on Hinkley Point C

The Government surprised many with its 11th-hour announcement to review the decision on Hinkley Point C. Emma Norris looks at the infrastructure implications and what this could signal about decision making in Theresa May's administration.

EDF’s highly anticipated final investment decision on Hinkley Point C – the £18bn project to build the UK’s first new nuclear power plant in 20 years – was taken yesterday after much speculation about the future of the deal in the aftermath of Brexit. But instead of getting on the train to today’s planned signing ceremony, the Government announced that it wanted to review the project and would delay its decision until early autumn. This latest twist in the long and complex story of Hinkley Point C highlights the weaknesses of infrastructure decision making in the UK and the uncertainty in the post Brexit landscape. So what does this mean now for Hinkley Point – and what could be the consequences for the rest of government major projects? Further evidence of a ‘policy pause’ The decision to review Hinkley is further evidence that the Government is undertaking a 'policy pause' in a number of priority and high profile areas:
  • Universal Credit – whilst avoiding an outright reset – has had a timetable extension to 2022 to provide more time for implementation.
  • A number of social reform programmes, including David Cameron’s ‘life chances’ agenda and the National Funding Formula for schools, have been delayed.
  • Infrastructure project decisions have been put on hold – including the long-awaited decision on whether to build a third runway at Heathrow – without even any indication of the timetable.
Uncertainty for major projects It is understandable that Theresa May and Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, want to take some time to consider the deal before signing it off. It has always been controversial (even amongst EDF’s own board) and it is unlikely either May or Clark was much involved in the initial decisions. However, there is a danger that the decision to announce a review now will create more uncertainty in a project that has already experienced its fair share of instability. It might also give the private sector the jitters on other planned infrastructure projects like HS2. Opportunities in the review Despite the uncertainty, reviewing the Hinkley Point C plans could have significant benefits for the Government and taxpayers – but only if the review period is used effectively. In the case of Hinkley, EDF bear the construction risk, which is often the source of concern with over-optimistic assessments of public sector projects. However, many people now think Hinkley looks like poor value because of changes in the energy market since 2013. May and Clark can use their review to reconsider the subsidy arrangements for the power station, which guarantees EDF a fixed price for the electricity produced. The fixed price for energy was set back in 2013. Since then, low-carbon competitors have become cheaper and the drop in wholesale price means that the latest National Audit Office (NAO) number crunching forecasts that the total level of subsidy paid to EDF will be £30bn over the first 35 years of its operation, not the £6bn that was forecast in 2013.  However, any change to that guaranteed price would require a further vote from EDF’s board, potentially introducing further delay and uncertainty. UK consumers also have an interest in when electricity from Hinkley comes on stream. May and Clark should also ensure an achievable timetable is set out, taking into account the perspectives of some experts who have argued that the 2025 timetable is unrealistic. There also needs to be greater clarity on benefits and liabilities – including whether sufficient funds are guaranteed by EDF to deal with decommissioning or the costs of closing the plant early. Too often, those responsible for major projects fail to get sufficient assurances on costs, timings and benefits, and projects suffer the consequences in the longer term as a result. The delay will cause consternation in some quarters and adds to the sense of uncertainty that is surrounding numerous policies and projects that are supposedly in the pipeline. But if this review can provide May and Clark with the assurances they need that this project can be delivered in a cost-effective and timely manner, the uncertainty it will inevitably cause might just be worth it.

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