Hinkley Point set to generate £100bn for EDF and Chinese partner
EDF and its Chinese partner could be paid more than £100bn over 35 years for Hinkley Point C’s electricity if the UK government gives the go-ahead to the French utility’s contentious nuclear power station, according to analyses commissioned by the Financial Times.
The total revenue that EDF and CGN secure from Hinkley Point C could even be as high as £160bn, said three analysts, depending on assumptions about inflation, plant output and idle time for maintenance.
These figures are likely to be seized on by critics of Hinkley, who argue that the British government was far too generous in 2013 by guaranteeing that the EDF-led consortium will be paid £92.50 per megawatt hour for electricity, uprated annually for inflation, during the nuclear power station first 35 years of operation.
There are also rising concerns over whether Chinese involvement in the project could be a threat to security. Theresa May, the UK prime minister, revealed on Sunday that the government would consult security experts on Chinese involvement in the UK’s nuclear power sector. Both EDF and CGN are state-backed companies.
The announcement follows the prime minister’s surprise decision in July to hold a review of the £18bn project in south-west England, which will also be asking questions about value for money.
Customers will be forced to pay a significant share of the expected revenue through special charges on their energy bills if wholesale electricity prices fall below £92.50 per MWh in the contract period. The rate is currently £41.95, according to ICIS Power Index. A recent projection by the UK’s National Audit Office put the customer subsidy at £30bn — almost five times the original estimate.
Juan Rodriguez, analyst at AlphaValue, estimated Hinkley Point C’s total revenue in cash terms at £102bn, assuming that the plant ran at 90 per cent capacity for 90 per cent of the time over the duration of the contract. It also assumes an inflation rate of 1 per cent.
“That is why [EDF] want to build the Hinkley Point project so badly,” said Mr Rodriguez. “If they manage to build it on time, it will be a cash machine.”
Two other analysts were more optimistic, saying Hinkley could run at close to full power for 90 per cent of the time, which would generate revenue closer to £115bn in cash terms over the 35 years.
If the inflation rate was 2 per cent, the total revenue could rise to as much as £160bn. Analysts cautioned that the large numbers for Hinkley Point C’s estimated revenue partly reflect the impact of inflation over the life of the contract, so its value at current prices would be less.
Mr Rodriguez said that applying a so-called discount rate to Hinkley Point C’s estimated revenue, to reflect the fact that money earned today is worth more than that secured in the future, could bring the value down to £89.6bn.
Officials at the UK parliament have estimated the plant’s total revenue at £72bn at 2015-16 prices, and after applying a discount rate.
EDF, which is due to have a 66.5 per cent stake in Hinkley Point C, with CGN holding the remainder, declined to provide a revenue figure for the plant and would not comment on the analysts’ estimates.
EDF said in July it expected to secure a 9 per cent internal rate of return on its investment at Hinkley.
In spite of the significant revenue and profit that EDF is expected to earn, there is disagreement among the company’s board members and managers over the project given that the £18bn cost could escalate and the French utility has sizeable investment obligations at home.