Sizewell C - what'll it cost us? (part 1)

Spoiler alert: nobody knows; and it's not clear anyone cares who has agency in the matter[1].  We've written about aspects of this any number of times - see the tabs below if you're interested.

Recap on Hinkley Point C:  granted a long and very flexible CfD (there's an extraordinarily lax backstop date for start-up, which the government glibly extended when EDF requested, so it can't be reliably built into system planning - which negates the supposedly vital aspect of "reliable baseload power" which is nukes' raison d'être) with a handsome, index-linked strike price.  It doesn't even compel EDF to build the thing at all ! The one aspect that might have been seen as in our favour is that EDF bears 100% of any hypothetical the absolutely inevitable monstrous cost overrun.  But even that is irrelevant because again, when asked, HMG just gives them more money.

SZC:  EDF nonetheless vowed never again to do another nuke on HPC terms (wonder why..?), requiring instead that they be shielded from almost all construction cost risk[2], but again with no meaningful timetable for completion; and that they be funded throughout construction, even if over-running[3].  They also demanded their ongoing costs be met via the electricity price after they (hypothetically) commission the damned thing - it'll be something like a CfD with a rolling cost assessment setting the strike price: though for some reason HMG et al are loathe to use the CfD / strike price nomenclature.  Oh, and EDF have successfully demanded hard cash - billions - upfront from HMG to fund "development work" prior to taking the decision to go ahead, even after having said it'll be the same design as HPC AND they'd been working on it for 10 years already.

This subsidy approach is being delivered via a variant on the Ratable Asset Base (RAB) approach, beloved of US utilities for decades, the Thames Tideway Tunnel, LHR T5 etc etc.  Bottom line, we all get to pay in installments, starting right now.  Remind me again, when will it start up?  Say after me: Nobody Knows and Nobody Cares. 

Why was this agreed?  The ostensible reasons are:  (a) the nuclear lobby has persuaded successive governments we must have more nukes;  and (b) "it's much cheaper this way" - a material portion of the total HPC cost is financing charges.  [Why can't French-government-owned EDF finance more cheaply than the UK government?  Very good question.  Always bear in mind, though, that for the French the Whole Point of HPC and SZC is as part of their grand strategy to get other nations to contribute to their humungous nuclear liabilities - see this post from 18 years ago.]  

Oh, and over & above this notional cost saving via lower financing costs (real enough, if you accept the premise), they also promise cost savings via the cookie-cutter effect, because SZC will be the same design as HPC.  We return later to this delightfully simple notion confected for simpleton politicians.

You can readily research for yourself that when the damn' thing inevitably overruns its "budget" (hah!) the taxpayer + billpayer combo picks up most of the tab.  So what, then, are the incentives on EDF to keep costs down?  Errr ...   Seriously, this is a massive and excellent question we'll return to next time.

Here's the thing: in having thus devised featherbedding that's comfortable enough for feeble, state-owned EDF to be willing to go ahead and build the thing, it's equally attractive for other investors, who are joining the fun and taking equity.  Centrica et al are anticipating low-risk, double-digit returns in return for stumping up their own capital.  [HMG is taking some equity: but why not all of it, HMG with its even-lower cost of capital and endless ability to dump costs on bill payers?  Another good question - to which the answer is presumably: they don't like it appearing on the Treasury's books.] 

Yes, folks, it all smacks of desperation.  And there's nothing you can't (/ won't) do when you're desperate and you can write cheques on other people's accounts.

Coming next:  

• why SZC's "identical design" won't cost less than HPC
• what else does all this teach us?
• what other reasons might there be for the charade?

ND

____________

[1] Curiously enough, some of the people who care are (a) several of the rather diligent French authorities, and (b) the French unions.  They are ignored by the French government.

[2]  The HPC contract already substantially shields EDF from the risk of costs rising because of changing safety regs etc.  Obviously, the cost increases EDF wants to be protected against are those resulting from their own bad decisions, flawed engineering, poor project management etc - which have been legion at HPC. 

[3]  Most householders know you don't pay your builders up-front without stern performance conditions.  Of all the companies not to trust with this, EDF is up there with the dodgiest cowboys in the construction market, as all experience shows.  Never will the government be able to say "how could we have known..?"