Hitachi’s decision to halt investment at its long-planned nuclear plant at Wylfa in Wales undermines the UK government’s energy strategy. For the past decade, replacing the existing nuclear fleet with a generation of new stations built and run by companies from around the world has been at the heart of that strategy. But only one project is proceeding — the ill-starred Hinkley Point which is a decade behind schedule and billions over budget, with one more at Bradwell in Essex dependent on the government’s willingness to allow a Chinese company to control a key element of national infrastructure. The reason, which has implications far beyond the energy sector, is that international business has begun to distrust the UK as a place to invest and has lost confidence in the ability of the British government to complete realistic financial deals.
Because of its high upfront capital costs and slow payback schedule, nuclear power will always be a tough investment for companies who have to satisfy investors wanting a good prospect of secure returns. That problem has been compounded by the perception of high construction risks, triggered by the problems at Hinkley and other developments involving the French EPR reactor technology.
Nuclear power is therefore only viable if there is a financing regime involving public sector finance or some guarantee of future revenues. Hinkley was given price guarantees — a lavish deal involving prices which will be index linked for 35 years. But in a climate of falling energy prices such exorbitant propositions are no longer tenable. The challenge for the government has been to find an alternative. Hitachi has waited for six years at a significant cost and has finally lost patience.
It will not be the only international company to reach the uncomfortable conclusion that at the moment major projects in the UK which require government engagement are to be avoided. In Whitehall, ministerial and civil service time is devoted to Brexit and little else. The civil service is demoralised and there has been a continuing exodus of talent.
The lights will not go out. Wylfa and the other planned nuclear stations would not have produced power for a decade or more. There are alternatives. Much more wind power capacity could be built. Wind and natural gas could be combined to produce what the industry calls “firm power”. Existing work under the “Faraday challenge” could be extended to energy storage at the level of the grid. But those and all the other available options need the government to take clear decisions and to design a framework within which investments can be made.
Hitachi’s decision should be a sharp wake-up call. In a hybrid economy where private investment requires a credible and reliable set of public policies, indecision is the enemy of progress.
The writer is an energy commentator for the FT and chair of the King’s Policy Institute at King’s College London