Durham University Business School Comments On Britain’s Uncertain Future

Co-Director of Durham Energy Institute (DEI), Prof. Tooraj Jamasb, comments on the Government’s decision to postpone its final resolution on Hinkley and the impact this may have on foreign investments into the British energy sector. 

“The Government’s decision to postpone any final resolution on the new £18bn nuclear power station Hinkley Point C has come as a surprise to most of the industry and public at large. The final decision will have to wait until early autumn. This gives the government time to look again into the technological challenges of this particular project design as well as the financial strength of EDF and even the political commitment of its owner, the French government.

“A lot has changed in energy markets since the Hinkley project was first planned. Having a new government in place offers an opportunity to revisit the merits of the project while being less bound to commitments of the previous government. It is also possible that the government may want to use the project as a card in its post-Brexit negotiation to soften the French stance on trade deals.

It is also possible that the government may want to use the project as a card in its post-Brexit negotiation to soften the French stance on trade deals.

“The future of the British energy market in the European single energy market is still uncertain and will need to be negotiated. Also, the commitment to climate change objectives may be tested during the uncertain economic times ahead. EDF may take some comfort in the contract for differences that insulates it from some market risk as the British government assumes much of the price risk. However, in the long run the energy markets can be rather unpredictable and will test the strength of any contract.

“Regardless of the government’s decision to postpone any ruling on Hinkley, other foreign investors will not be put off even if the project is cancelled given the important issues surrounding it. It is worth remembering that the participation of large international energy firms in Britain is dependent on the financial health, the events in the home markets, and corporate strategies of these companies. Having some nuclear power in the generation portfolio has certain benefits (and costs and issues). However, the lack of competition and options has meant that we are left with a binary choice which hardly seems ideal.

“Reading the news today about Hinkley, it is important that we take a long term view of it. We have by no means heard the last of this project. The project itself, or the idea of it, will have more twists and turns and be with us for some time. The new government has not had time to develop a new coherent energy policy but the main alternative to Hinkley is, in the medium term, more CCGT generation which may require revisiting the carbon emission targets.”