“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again … there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.” John Maynard Keynes, The General Theory of Employment, Interest and Money, 1936
“Concorde and the AGR nuclear programme are two of the three worst civil investment decisions in the history of mankind” David Henderson, 1976
At the end of July 2016, there appears to be a temporary outbreak of good sense. Hinkley Point C (HPC) has been put on hold by the British government, hours after receiving final approval by its main developer – EdF, the French state power company.
Rumour has it that our new Prime Minister, Theresa May, is concerned about the Chinese involvement. China General Nuclear Power Corporation has agreed to pay one third of the total construction bill – £6bn out of £18bn – with EdF paying the other two thirds. Mrs May has, according to the media, concerns about something as fundamental to national security as a nuclear power station being partly owned by a Chinese state company.
Security concerns aside, the estimated cost is staggering: HPC will be the most expensive power station built on Earth hitherto. Turkey and South Africa both have plans to build even larger and more expensive stations, but they are at an earlier stage of development than HPC. And of course, the actual cost of HPC will be much higher than the estimate: the track record of building nuclear power stations in the West, especially Britain, shows a consistent pattern of overspend, often several times over. The first of the British AGR nuclear power stations, Dungeness B, took 22 years to build and cost more than 5 times its budget. If we were to extrapolate from this example to HPC, the first British nuclear project for decades, then it will commission in 2038 and cost more than £90bn.
But our government has signed a long-term contract whereby EdF takes the construction cost risk, so that’s OK isn’t it? Well the contract has been struck at a price of £92.50 (inflation indexed) for each MWh of electricity that is generated by HPC in the future, over a 30-year timeframe. That is more than twice the current price of wholesale electricity in Britain. This means the government has taken a 30-year bet that electricity will more than double in price (at today’s prices, that is, even more if inflation is taken into account), with the bet being underwritten by the nation’s electricity consumers. And it is highly likely – again based on the track record of nuclear in Britain, as well as EdF in France and Finland – that commissioning will be delayed by several years, especially if either or both of the developers goes bust during the vast construction effort.
25,000 jobs
By and large, the media are unimpressed by the delay. According to several papers, we will upset our friends (the French and Chinese, by inference), spook investors for future projects, and endanger 25,000 jobs. (The latter figure originally comes from A2O People, the recruitment organisation for the UK nuclear power industry. It is A2O’s estimate of all of the short-term positions that will be required over a 10-year timeframe, with a peak requirement of 5,600 construction employees. Not quite the same as 25,000 permanent jobs.)
This frustration displays a public desire for big investment. HPC is one of several mega-projects on a list that includes HS2, the planned high-speed rail link between London and Birmingham; a third runway at Heathrow (or a second one at Gatwick); and the replacement of Trident. It is felt that these big projects will be good for Britain: they will promote employment, stimulate growth, make us more secure.
So important are employment and growth considered to be, they trump concerns about a waste of money. Keynes famously suggested that it was sensible to bury money and then sell the rights to dig for it. Admittedly, he was writing during the Depression of the 1930s – he might not be making the same suggestion were he alive in 2016 – but we still have the same obsession with work for the sake of it, even if the nature of the work is intrinsically pointless.
Most people would argue that ‘keeping the lights on’ has a most definite point to it. Maybe so, but there are obviously much cheaper ways of generating electricity than building HPC. Even offshore wind, long thought to be the most expensive of the low carbon forms of generation, is now cheaper: DONG Energy of Denmark are building offshore wind in the Netherlands for less than the strike price of HPC.
A gentler approach
We need to consider a gentler approach: to energy, economics and life. Why are we fixated on major capital projects when our existing infrastructure needs repairing? Commuters to London would benefit more from money spent on signalling equipment – currently decaying at the side of tracks, with problems and delays incurred whenever the weather is less than completely benign – than on an over-hyped and environmentally damaging high-speed line to Birmingham. Energy consumers in Britain are more at risk of the “lights going out” due to the parlous state of existing electricity networks than because of the absence of the world’s most expensive power station. Short-term employment on such mega-projects may be followed by long-term unemployment when the full economic cost of them is realised.
Perhaps if we were less frightened about being out of work, we would be more rational about the jobs that we should be creating, as well as those we should not, and about sharing existing wealth more fairly amongst us all.