The board of EDF meets in Paris on Thursday morning to discuss its long-planned investment in a new nuclear power station at Hinkley Point in Somerset, southwest England. There is speculation that the meeting will come to a definitive decision after years of delay. If the outcome is to go ahead, the French company has work to do in rebuilding trust. So what should investors and consumers be looking for ?
To begin with, it is important to put aside the fanciful idea that the announcement is simply a matter of French politics. Most of the jobs created by Hinkley will be in the supply chain in France and the argument is that President François Hollande needs to ensure that they are not put at risk before the presidential election next year.
Equally fanciful surely is the idea that the UK government is gritting its teeth and going ahead with a project it no longer believes in because of the need to maintain good relations with France because of the Brexit negotiations and the desire to ensure that the French continue to manage the refugees in the camps outside Calais rather than exporting the problem across the Channel.
Cynical conclusions of this sort will surely be swept aside by the detail of the announcement on Thursday.
Of course, there will still be unanswered questions. Why is the UK government locking consumers into highly expensive power energy supplies, with an index link price for Hinkley fixed and guaranteed for 35 years, despite the fact that the price of every other form of power supply — including solar, wind and gas — is falling?
Why has the government not responded to the report from the National Audit Office which suggests the complex subsidies that give EDF a guaranteed price for the power it produces could impose a cost of up to £30bn on UK consumers because of the weakness of the deal negotiated in 2013 when wholesale electricity prices were higher?
Why has the government refused to countenance borrowing money on its own account to help fund the project — a move that would have cut borrowing costs and reduced the charge to consumers by at least 20 per cent ?
If this is to be a serious commitment by EDF we should at get answers to at least some of the doubts and concerns.
*First, we should expect to see the publication in full of the expert assessments made of the problems that have bedevilled the two EPR reactors under construction at Olkiluoto in Finland and Flamanville in Northern France. Olkiluoto was originally supposed to come on stream in 2009 and, according to the Finns, the costs of the delay now amount to some €2.6bn. Flamanville will be six years late at least and is already €7.3bn over budget. Trust in the technology has to be restored. Publication of the reports on what went wrong in both cases will demonstrate that lessons are being learnt and that EDF has remembered its commitment to transparency.
*Second, we should expect to see the contract for Hinkley published in full. This will be another important step in rebuilding trust. Consumers, French and British taxpayers, the company’s employees and investors — including shareholders in EDF, who have seen the company lose more than 60 per cent of its value over the last two years — need to know in detail who will be carrying the risks associated with the project. If construction is delayed, for instance,who pays any extra cost, and who will compensate consumers for the investment required to find alternative power supplies? The French government as the ultimate owner of EDF has seen these details. So has the Chinese government as a major investor. Consumers and non-government shareholders will be pleased to be brought into the circle of knowledge.
*Third, we should expect to see a detailed explanation of who is funding the construction phase of the project over the next decade. There are numerous estimates of the total cost of the project ranging from £18bn to £37bn but even the lowest figure would make Hinkley the most expensive nuclear station ever built. The sum dwarfs the resources of EDF itself, which has a current market capitalisation of just €21bn Euros. The company’s credit rating has recently been downgraded by Moodys and the outlook remains negative. The risks to the company have already provoked the resignation of the former finance director Thomas Piquemal. Any further French (or UK) government funding would raise more state aid issues in Europe. A proper financing plan is obviously critical to a final investment decision and will help to restore market confidence in the current leadership of EDF.
* Fourth, we should expect to see a clear and absolute commitment to deliver the project by 2025, as repeatedly promised in recent months by EDF’s leadership in the UK. The UK has to plan its energy supplies and the two reactors at Hinkley are due to provide 7 per cent of total requirements. Any further delay would require alternatives to be found, and soon. One hopes Thursday’s announcement will sweep aside all doubts and we will be able to look forward to cooking our Christmas turkeys in 2025 on Hinkley power.
All this, of course, assumes that there really will be a decision on Thursday rather than yet another postponement. The EDF board could decide that there are still too many unresolved problems associated with the EPR and that the risks to the company’s future are too high. As the French proverb has it: Qui mal commence, mal achève.