Hinkley C

The cost of building Hinkley – according to the last announcement we can find – will be about £18bn, some way below the EU estimate of £24.5bn that had been bandied about which means that Hinkley may not – after all – be the most expensive man made structure on the planet (we don’t know).

But what about the consumer? And where will the money go. Here’s a quick primer:

See also: Hinkley fall in wholesale price adds billions to support payments

How much will the consumer pay for Hinkley? (£81bn)

There is a difference between the build cost of the project (which has apparently fallen by around £6bn) and the actual cost to the consumer (which remains exactly as it always was). Or put another way, Hinkley just got cheaper – but they are selling it for the same.

Under the “Contract for Difference”  (CfD) fixed price deal proposed by the Government the owners of Hinkley would take in around £81bn in today’s money over the 35 year lifetime of the contract.

How much of that is actually subsidy?

Ok. So some of that is just the money the new owners could expect to receive from selling their power in the same way an existing coal, gas or nuclear station does – on wholesale markets – it’s not fair to call that subsidy. 

Because of the complexity of the deal the government has struck the subsidy element is actually impossible to know. Basically the consumer will “top up” the amount of money we pay per unit of power generated to bring it to a fixed price.

Let’s start low. If, like the European Union, you factor in the cost of borrowing the money to build the plant (around £17bn) and assume that the wholesale cost of power is either reasonably high or at least stable at where it was a year or so ago then the subsidy element varies between £5 and £17bn which is – admittedly – not very low.

But under the deal EDF say they have dramatically cut their borrowing cost (by teaming up with the Chinese state and paying for it themselves) and that the total cost of the project will be £18bn, not the £24.5bn the EU estimated. At the same time the cost of power has fallen significantly – increasing the ‘top up’ the consumer has to pay.

So. By our calculations that leaves the total subsidy at around £41bn which is quite close to the government’s own recently published estimate of around £37bn (the difference being estimates of the wholseale price). 

We should note ministers don’t accept the price will stay low – indeed it has just spiked – but we’ll stay away from market forecasting for now.

So what does that work out per bill-payer?

It works out at around £1.1bn a year or about £15 a household according to our calculations, taking into account variation in the wholesale price it would seem reasonable to assume around £10-15 per household, per year.

Again ministers prefer to go with £5.

And how much profit will go to the two big players?

Again it depends who else they get involved but based on what we know now it’s possible to work out the profit margin the Chinese and French state are getting on their investment by subtracting the build cost and the cost of maintenance from the amount of money they are being paid.

How much is that you say? It works out at £15bn for China and £30bn for France from UK bill-payers.

In a recent analysis Barclays worked out that even if the cost of Hinkley rises by 25%, the builder – EDF – will still make a return. So a decent amount of “insulation” then.

And who are these Chinese partners anyway?

Chinese state-owned nuclear company China General Nuclear Power Corporation (CGN) has a 33.5% stake in the development of the Hinkley C reactors – and also a stake in the Sizewell B and Bradwell B plants. This is the first time CGN is investing in nuclear in the UK.

Another Chinese state-owned nuclear firm, China National Nuclear Corporation (CNNC), is a joint venture partner.

CGN has worked with EDF on projects spanning 30 years, according their site. This includes the joint venture between CGN and EDF Group to build two EPR - European Pressurised Reactors – at Taishen in China, which is the same technology chosen for Hinkley Point C. These are not yet operational and HSBC says they are running three years behind schedule.

The firm styles itself as the “largest, most experienced nuclear power reactor operator in China” and is based in Shenzhen, China.

It has two operational nuclear plants, with several under construction and in the pipeline.

CGN isn’t solely a nuclear company, and has many subsidiaries in China that operate a portfolio of mainly wind but also solar farms and hydro projects. In 2014, CGN also bought three windfarms from EDF that it built in the UK.

It is not really clear how CNNC is benefiting from the deal at this stage, though they might have a share in CGN’s stake, but they are on board for their engineering expertise as the firm specialises in research and development. “Historically, CNNC successfully developed the atomic bomb, hydrogen bomb and nuclear submarines and built the first nuclear plant… in China”, according to their website.

CNNC is under government control but in May the company announced it aimed to raise $2.13 billion in an initial public offering – the largest in China for four years.

Despite all the safeguards in the new deal, there doesn’t appear to be one preventing CNNC’s involvement.

How much risk are they taking?

Because that’s what you get big bucks for right? Big risks.

The answer is we don’t really know. The government’s infrastructure guarantee (which guarantees borrowing for big infrastructure projects so reducing the risk to, well not very much at all) only kicks in if EDF can prove it can build a nuclear plant a bit like Hinkley in France – which right now isn’t going so well (it just got delayed, again).

That’s been stalling things so today the two partners said they’d fund it themselves, well, to begin with at least, until y’know, they’ve managed to build the other one. How that breaks down is hard to say.

The treasury has already allocated around £17bn to the project (which is, um, only £1bn shy of the build cost). Earlier this year George Osborne announced an initial £2bn in infrastructure guarentees for the Chinese investment. If that is still a goer that should tide them over nicely until things become clearer.

So the answer on risk? We have no clue. Some of the risk will lie with the French and Chinese state. Some will lie with the UK taxpayer through the guarantee. Quite how that divvies up we won’t know until long after we have committed our £81bn.

How does all this compare to renewables?

It’s impossible to say because Hinkley won’t come on stream until 2023 (at the earliest) by which time the cost of other technologies will likely have changed. The Hinkley (and possibly Sizewell/Bradwell) deals is also several times larger than any single renewable contract.

In fact by the end of the 35 year contract (double the length of most renewables deals) none of the UK’s existing renewable subsidies will any longer be in force.

However right now the government’s contracts for onshore wind and solar power – which are just 15 years – are both coming in lower than that offered to Hinkley.

A Bloomberg New Energy Finance analysis says the UK could have six times the power-generation capacity for the same money by investing in wind turbines instead of Hinkley.

And the cost of wind turbines off the British coast go down.

Where earlier this summer Dong Energy promised to produce offshore wind power for the Netherlands that’s cheaper than Hinkley, Vattenfall has just gone even further.

Its new offshore wind farm will produce power for Denmark that’s at least £20 cheaper per MWh than the stuff the UK will get from Hinkley.

These kind of headlines will continue, with think tank ECIU detailing how the UK can ditch Hinkley, keep the lights on and actually save £1 billion.