Development of new nuclear power facilities came to a screeching halt after 2011’s Fukushima meltdown. Everywhere but Britain, that is. It intends to be the first one back in the cooling tank with an October announcement of a $23.5-billion expansion of its nuclear program. Being first, however, comes at a price.
Électricité de France (EDF) and two Chinese partners will build the Hinkley Point C nuclear power station in Somerset, in England’s southwest. When completed in 2023, it will generate 3.2 gigawatts of power—7% of the country’s electricity needs for 35 years.
As Switzerland and Germany opt out of a nuclear future, however, doubling down an unpopular, highly politicized energy source looks increasingly expensive, as EDF must build ever-more political risk into the price tag.
The deal is already favourable to the French: the agreed-on strike price for Hinkley C’s electricity—around $150 per megawatt hour—is double current energy rates and could increase further if another U.K. nuclear plant currently on the drawing board is not built. Critics say Hinkley amounts to Britain funding a lush project for EDF, which is on track to receive a 10% return.
That 10% could actually jump to 20%, estimates RBC utilities analyst Martin Young, because of the U.K. infrastructure loan guarantee and non-recourse financing structure. Impressive, but, over 35 years of the plant’s operational life, the longer EDF is exposed to politicized nuclear policy, the more risk. “As a consequence of that, having a return that is in the region of 20% is probably what you need,” Young says.
All that assumes the project is completed on time and budget—never a safe bet with mega-infrastructure projects of this kind. Two EDF plants under construction in France and Finland are over budget and behind schedule. But Young argues Hinkley’s longer building schedule increases the likelihood it will be completed on time—as opposed to EDF’s other troubled projects.