16 September 2016

Theresa May has decided that Hinkley will go ahead, with new conditions to protect national security. But Emma Norris says the review period is a missed opportunity and shows the decision-making process leaves a lot to be desired.

During her first couple of months as Prime Minister, Theresa May has shown her willingness to break with her predecessor. She paused prison reform and signalled a completely different approach to schools, delayed the Heathrow decision and reviewed the Universal Credit timetable.

But the most eye catching change she made, within 20 days of taking office, was the decision to review whether to go ahead with Hinkley Point C. This is the £18bn project to build the UK’s first new nuclear power plant in 20 years, which will be in receipt of subsidy for 35 years – which she inherited from David Cameron and George Osborne.

There have been some new conditions attached to protect national security interests (although some have raised doubts about how meaningful these are), but there have been no other changes to the deal. The review was a missed opportunity to deal with concerns about the subsidy arrangements, whether EDF will deliver on time and to get a better grip on benefits and liabilities. Going ahead without addressing these issues raises broader questions about the quality of government decision making, particularly the balance between political and economic considerations on key infrastructure.

Politically, the decision to press ahead makes sense. Relations with China and France are preserved. The decision also acts as an important signal: the UK is open for business – continuing with big infrastructure projects in the face of the disruption caused by Brexit. Perhaps just as importantly for May, it indicates that after a series of ‘policy pauses’, she will not shy away from making big, strategic decisions.

But the economics of Hinkley Point C still look as questionable after the review as they did before it. When the deal was first agreed, EDF was guaranteed a price of £92.50 per megawatt hour, which is in 2012 prices. In today’s prices, it is closer to £100. And the National Audit Office demonstrated that this may be more expensive than some renewable energy sources by 2025 (when Hinkley is supposed to be turned on), creating the risk that this starts to look like a worse deal for the bill payer.

We have said before that May and her Business and Energy Secretary Greg Clark should also have used the review to get reassurances that the timetable is achievable. Whilst the previous government was keen to stress that the risk of any potential delays would be borne by developers, an unrealistic timetable would clearly have implications for the UK’s energy security (Hinkley is due to deliver 7% of the UK’s energy once complete).

But again, there also appears to have been no further reassurances on this front. This is despite the fact that the expected delivery date has already slipped from 2017 to 2025 and similar EDF projects in Finland and France are late and billions of euros over budget.

Theresa May has proved she is willing to make a big strategic decision. But waving Hinkley through with no changes on guaranteed prices and no reassurance on the timetable suggest the quality of decision making still leaves a lot to be desired.

Next up – Heathrow?

Comments

How do we know if the (perhaps) improvements in Hinkley are real improvements on our older generation sites? What makes them better?