CGN/Sizewell C: Forcible sale may give Chinese firm a warm glow
For sale: Minority stake in off-plan £20bn nuclear plant. Risks include massive overruns in cost and budget, political intervention and a wary customer base. One current owner, China’s CGN; a legacy of the country’s shortlived golden decade of collaboration with the UK.
British plans to flog a 20 per cent stake in the proposed Sizewell C nuclear plant in Suffolk are ambitious. Nuclear plants can take a decade or more to build; construction lead times have increased two-fold in the past half century, according to researchers at Imperial College London.
France’s EDF, owner of the remaining 80 per cent of Sizewell C, does not need academics to tell it that. Earlier this year it (again) revised up costs and timing on Britain’s Hinkley Point C. Finland’s Olkiluoto 3, due to be up and running in 2009, is still sitting idle 12 years later.
An initial public offering — one option mooted by ministers — could not fly in the gale of uncertainties. In order to de-risk the NewCo (or perhaps the NukeCo) to an acceptable level for public markets, taxpayers would need to backstop cost overruns and subsidise power. They would also need to absorb decommissioning costs, already a £135bn liability.
Trade buyers or even deep-pocketed private equity would be likely to blanch at taking a minority stake in such a controversial industry. That leaves infrastructure funds. They, too, have walked away in the past. A reported £6bn deal for ageing plants in the former British Energy quickly detonated. But a structure that shares risk — much like the former private finance initiative — could win them round.
Creating a regulated asset base, one option on the table, has been successfully deployed before. Airports and London’s new sewer are underpinned by the model, which allows for funding during the build phase.
But such schemes have fallibilities. Thames Tideway, facing a pandemic-inflated bill, wants to raise Londoners’ water bills to make up the slack. Heathrow airport was unable to take full advantage of the RAB for its proposed third runway. A glance at recent headlines shows the stakes are even higher with electricity. Raise those again for nuclear. That calls for robust guarantees. Infrastructure funds typically target gross IRRs of 12 to 14 per cent; renewables offer less than half of that.
Previous foreign investors, including Toshiba and Hitachi, have pulled the plug on British nuclear. British hostility to China looks set to provide CGN with its own exit, leaving taxpayers holding the baby.
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