Centrica's exit isn't as big a deal as you think

Centrica withdrew from new UK nuclear projects.

Yesterday Centrica announced it would not take a 20 per cent share in the new nuclear power plant planned for Hinkley Point in Somerset. It was the minority partner with EDF, and leaves the France-based utility holding the entire (potentially £6 bn) can.

Centrica pulled out because of uncertainty on cost and schedule. No doubt its decision is a blow for the project to build a 1650 MW EPR pressurised water reactor—for which, by the way, EDF has not made a final investment decision. But there still are lots of reasons to hope that the project will still go ahead.

First, the current adverse market conditions favour nationalised utilities (or vendors) like EDF for nuclear new-build; whether it is Russia in India, Turkey, Belarus or China, or South Korea in the UAE, state-owned developers have the deepest pockets. They need them: unlike gas or coal, nuclear power plants demand most of their costs up front.

And those vendors that are not state-owned but wish to pursue nuclear new-build have had to act like it. In 2011, GE Hitachi proposed being a major investor in a new reactor for Lithuania (although those plans have probably been shot down by a referendum). Its corporate cousin Hitachi has recently come to the UK and is underwriting its pre-construction safety assessment (for now) as the new owner of nuclear new-build venture Horizon, after Germany-based utilities e.on and RWE sold out. They were beset by problems at home: after Fukushima, the German government quickly arranged a phase-out of all nuclear power plants. Over the next decade, their once-profitable assets will have to be written off.

One nuclear new-build vendor who has so far not pledged to take a share of a new-build project is France’s AREVA (79 per cent owned by the French state). However, its role as the principal contractor (with Siemens) for Finland’s Olkiluoto 3 has become tantamount to the same thing. To land the contract for the first non-France EPR, AREVA agreed with client TVO on a fixed-price contract. Subsequent delays and cost overruns have led to litigation with billions at stake.

Second, EDF’s purchase of British Energy in 2008 really only makes sense in the context of the opportunity for new-build. Seven of the eight nuclear power plants it bought at the time were based on obsolete technology whose potential for long-term operation was iffy (although their lifetimes will be extended by seven years in general). Those assets were not worth the £12.5 bn purchase cost. What was worth paying for, according to this idea, was lots of potential for new-build sites. Backing out now would harm the company’s future prospects.

Third, the UK branch of EDF, EDF Energy, has had a good 12 months. Its performance in 2012 was the best for seven years, which means not only cash in the bank but also a hopeful step away from technical faults that have hurt recent performance. Commercial production of the first units of its new 1300 natural gas plant in West Burton, Nottinghamshire started in 2012 and the rest are due to come online later this year. When Centrica joined EDF in new-build, it also put in a 20 per cent stake in EDF Energy’s operating nuclear power fleet. It has not announced plans to pull out of that investment.

The most important development for EDF’s new nuclear ambitions was that its nuclear reactor design was finally approved by the regulator at the end of 2012. Although it will still have to apply for a nuclear construction permit, obtaining design approval has broken the back of one of the biggest sources of nuclear new-build investment risk: the uncertainty caused by regulatory scrutiny. As of right now, the EPR reactor is the only modern nuclear power plant design that can be built in the UK. The Westinghouse AP1000 reactor is next in line; it is waiting for a customer to  finish the review process.

Will Dalrymple is editor of Nuclear Engineering International

Photograph: Getty Images
Photo: Getty Images
Show Hide image

I'm far from convinced by Cameron's plans for Syria

The Prime Minister has a plan for when the bombs drop. But what about after?

In the House of Commons today, the Prime Minister set out a powerful case for Britain to join air strikes against Isil in Syria.  Isil, he argued, poses a direct threat to Britain and its people, and Britain should not be in the business of “outsourcing our security to our allies”. And while he conceded that further airstrikes alone would not be sufficient to beat Isil, he made the case for an “Isil first” strategy – attacking Isil now, while continuing to do what we can diplomatically to help secure a lasting settlement for Syria in which Assad (eventually) plays no part.

I agreed with much of David Cameron’s analysis. And no-one should doubt either the murderous barbarism of Isil in the region, or the barbarism they foment and inspire in others across the world.  But at the end of his lengthy Q&A session with MPs, I remained unconvinced that UK involvement in airstrikes in Syria was the right option. Because the case for action has to be a case for action that has a chance of succeeding.  And David Cameron’s case contained neither a plan for winning the war, nor a plan for winning the peace.

The Prime Minister, along with military experts and analysts across the world, concedes that air strikes alone will not defeat Isil, and that (as in Iraq) ground forces are essential if we want to rid Syria of Isil. But what is the plan to assemble these ground forces so necessary for a successful mission?  David Cameron’s answer today was more a hope than a plan. He referred to “70,000 Syrian opposition fighters - principally the Free Syrian Army (FSA) – with whom we can co-ordinate attacks on Isil”.

But it is an illusion to think that these fighters can provide the ground forces needed to complement aerial bombardment of Isil.  Many commentators have begun to doubt whether the FSA continues to exist as a coherent operational entity over the past few months. Coralling the myriad rebel groups into a disciplined force capable of fighting and occupying Isil territory is a heroic ambition, not a plan. And previous efforts to mobilize the rebels against Isil have been utter failures. Last month the Americans abandoned a $500m programme to train and turn 5,400 rebel fighters into a disciplined force to fight Isil. They succeeded in training just 60 fighters. And there have been incidents of American-trained fighters giving some of their US-provided equipment to the Nusra Front, an affiliate of Al Qaeda.

Why has it proven so hard to co-opt rebel forces in the fight against Isil? Because most of the various rebel groups are fighting a war against Assad, not against Isil.  Syria’s civil war is gruesome and complex, but it is fundamentally a Civil War between Assad’s forces and a variety of opponents of Assad’s regime. It would be a mistake for Britain to base a case for military action against Isil on the hope that thousands of disparate rebel forces can be persuaded to change their enemy – especially when the evidence so far is that they won’t.

This is a plan for military action that, at present, looks highly unlikely to succeed.  But what of the plan for peace? David Cameron today argued for the separation of the immediate task at hand - to strike against Isil in Syria – from the longer-term ambition of achieving a settlement in Syria and removing Assad.  But for Isil to be beaten, the two cannot be separated. Because it is only by making progress in developing a credible and internationally-backed plan for a post-Assad Syria that we will persuade Syrian Sunnis that fighting Isil will not end up helping Assad win the Civil War.  If we want not only to rely on rebel Sunnis to provide ground troops against Isil, but also provide stable governance in Isil-occupied areas when the bombing stops, progress on a settlement to Syria’s Civil War is more not less urgent.  Without it, the reluctance of Syrian Sunnis to think that our fight is their fight will undermine the chances of military efforts to beat Isil and bring basic order to the regions they control. 

This points us towards doubling down on the progress that has already been made in Vienna: working with the USA, France, Syria’s neighbours and the Gulf states, as well as Russia and Iran. We need not just a combined approach to ending the conflict, but the prospect of a post-war Syria that offers a place for those whose cooperation we seek to defeat Isil. No doubt this will strike some as insufficient in the face of the horrors perpetrated by Isil. But I fear that if we want not just to take action against Isil but to defeat them and prevent their return, it offers a better chance of succeeding than David Cameron’s proposal today. 

Stewart Wood is a former Shadow Cabinet minister and adviser to Ed Miliband. He tweets as @StewartWood.