Hinkley: National security test is interesting but vague

After seven weeks of careful reflection the Government has decided it does want EDF to build a new nuclear power station at Hinkley Point in Somerset.

The strike price of £92.50 and therefore the cost of this project to consumers is unaltered, despite widespread criticism. EDF made it clear it would resist attempts to renegotiate, the Government won't indicate whether or not it tried.

There have been changes. EDF will no longer be allowed to sell its 66% stake in Hinkley project while the power plant is being built without the Government's permission. Perfectly sensible and also remarkable that the previous agreement allowed the company that option.

The new Prime Minister's sudden hesitation about China buying a stake in our nuclear generating capacity has been address by the creation of a new "national security" test for foreign investors keen to buy into "critical infrastructure". The idea is interesting but terribly vague.

The government officials I have spoken to this morning can't provide any detail about how this test will be applied, don't know what size of investment would trigger such a test and are unable to clearly define what the Government means by "critical infrastructure" other than airports and nuclear power plants.

Credit: Reuters

EDF and the Chinese company, CGN, seem to know more. Sources close to CGN have welcomed the Government's decision on Hinkley and see it as a green light for Sizewell and Bradwell. CGN's ambition to design and build a nuclear power station in Bradwell is unaltered, as is the 66% stake it will take in the project.

CGN's reactor was always going to have to meet the usual, regulatory safety requirements, the company is happy to sign up to an additional "national security" test - a test that other foreign companies with UK nuclear ambitions (Hitachi and Toshiba) will also be subjected to - and has agreed to allow the Government to take a "special share" in the project, a significant concession.

China is stumping-up £6 billion to build Hinkley so EDF declares itself "delighted". The French firm would probably struggle to fund the project alone and struggled previously to find investors willing to share the cost.

Principally this was down to the perceived risk. EDF's new European Pressurised Reactor is as yet unproven. Four are under construction, none has yet generated electricity, the first to be built in Flamanville has been beset with setback and frustrations.

EDF and CGN share all the upfront construction costs and therefore the risk of failure. The idea is that when Hinkley begins generating in 2025, they will enjoy the rewards.