That bill-payers got stuffed in the deal that brought the Hinkley Point C project into existence is beyond dispute these days. Even government ministers barely quibble with the National Audit Office’s assessment that consumers will be paying through the nose for 35 years. Instead, the defence has tended to run along these lines: don’t worry, we’ve triggered a “resurgence” in the nuclear industry in the UK and the next reactors will be relative bargains.
Life has not worked out as planned. The government stretched the limits of financial acceptability to try to persuade Hitachi to construct a £16bn plant at Wylfa in Anglesey but still couldn’t get the Japanese firm to sign up. Nuclear still wasn’t getting cheaper. No surprise there: the costs never seem to fall.
Now here’s the government’s latest effort to resurrect the show – “an innovative funding model”. Of course, it’s not really innovative. The “regulated asset base” (RAB) approach, which could be used at Sizewell B in Suffolk, and is intended to copy the design of Hinkley, is common in other parts of the utility world.
Think of the RAB method as an attempt to knock the sharp edges off the financial arrangements at Hinkley. At the Somerset plant, the developer, EDF, carries the risks of cost overruns but is allowed to charge sky-high guaranteed prices for the output when the plant is up and running. Under RAB, consumers would start to pay for a plant before it is built but the electricity at the end should be cheaper. For their part, investors get a lower, but safer, regulated return.
Genius? Not really. Aside from exposing consumers to the cost of overruns, RAB in effect also requires them to provide financing at zero interest, a point made by the National Infrastructure Commission last year. Little wonder, then, that the juice should be cheaper than Hinkley’s – some of the costs will be hidden from view.
But is RAB an improvement? Possibly. At least you get some competition among outside investors to provide capital, which may trim a few costs. And, by the time Sizewell could be commissioned in 2021, EDF should have completed its second plant in China. So we may be better able to judge whether the French state-backed firm has learned from its wretched experience in Normandy, where the Flamanville plant bust every budget and still isn’t generating.
So, yes, the RAB model is worth a consultation. But let’s not get carried away. First, as the same NIC report said: “There is limited experience of using the RAB model for anything as complex and risky as nuclear.” Second, no financing model can disguise the core truth about nuclear – the technology is hideously expensive.
The NIC said last year that the UK shouldn’t rush to tie itself to an expensive nuclear future and should instead back renewables, notably wind and solar, to continue becoming cheaper. Even after recognising the need to have secure “baseload” supplies, it recommended commissioning only one more nuclear plant, on top of Hinkley, before 2025. That remains a commonsense analysis. Renewables are winning the price race.
Let us pray, then, that a love-in with RAB does not reignite ministerial fantasies about a “resurgence” in nuclear. We don’t want a resurgence. We want to build as few new reactors as possible.
SFO complicates things at De La Rue
Only a month ago, banknote printer De La Rue looked a takeover target in the making. Its chief executive, Martin Sutherland, had said he’d quit after a profits warning. Then the chairman, Philip Rogerson, said he wanted to retire, to be followed by Andy Stevens, the senior independent director. In the wings, an activist investor, Crystal Amber, was trying to fill the vacuum by stirring up bidders.
It’s time, though, to revisit the takeover thesis. Nothing deadens appetites like a Serious Fraud Office inquiry, which is what De La Rue has now got. The SFO has launched a probe into “suspected corruption” in the group’s conduct of business in South Sudan.
The already tatty share price fell 16% to a 16-year low of 251p, and one can understand why. Even when SFO inquiries lead nowhere, they tend to take a long time to do so. Such investigations can also complicate director recruitment. Filling three big boardroom posts by the end of the year already looked a challenge – more so now.
Still, Rogerson has an early opportunity to reveal how he will execute his “orderly” succession plan because the annual meeting of shareholders takes place on Thursday. The gathering may be lively.