With yet another setback to the much-delayed Hinkley Point C nuclear plant, how much does the industry stand to lose if the government pulls the plug on the project?
The construction industry is already losing count of how many times EDF’s Hinkley Point C project has been delayed or pushed back.
Those delays looked like they would be laid to rest last week, with a green light for the project imminent on Thursday – only for the government to about-turn and push the investment decision back to the autumn.
The project had already endured a difficult 2016, with EDF’s financial chief quitting in March having expressed reservations about the viability of the project and the National Audit Office raising its own concerns about the potential cost to taxpayers.
Any further blows over the next few weeks ahead of the government’s decision could prove fatal to the proposals, which are estimated by the government’s own figures to represent £16bn in infrastructure spending.
So what would an infrastructure pipeline without Hinkley look like?
The government’s most recent National Infrastructure Pipeline from March this year pointed to £960m of spending on the project during 2018/19 – although with the latest setback amounting to a delay at the very least, it would be fair to assume that some of this spending will be pushed back.
At the Wylfa Newydd new nuclear project in north Wales, works being pushed back by just one year caused the CITB’s construction output forecasts for Wales to be downgraded from 7 per cent growth between 2016 and 2020 to just 3.7 per cent. Previous delays to Hinkley also caused downgrades to Experian’s output forecasts earlier this year.
“The political will [for Hinkley] doesn’t seem to be there like it is for HS2”
Martin Hewes, Hewes & Associates
Martin Hewes, founder of forecaster Hewes & Associates, says works at Hinkley have never been factored into his forecasts, which cover up to 2018, due to the ongoing delays, blaming “half-hearted” commitment among stakeholders to getting the project under way.
“It seems the attitude is, ‘If someone else pays for it, we’ll go along with it’,” he says. “The political will doesn’t seem to be there like it is for HS2, for example.”
Sectors to suffer
And looking beyond the immediate forecast period and proposed start date of 2018, there are further significant impacts on infrastructure spending.
The National Infrastructure Pipeline predicts total spending in the energy sector for 2019/20 and 2020/21 of £20.08bn and £19.88bn respectively. However, take out the works at Hinkley and the value of the energy pipeline drops by 10.4 per cent and 10.5 per cent respectively. The NIP puts spending on Hinkley for each of these years at £2.08bn, with the remaining £10.88bn pencilled in for 2021/22 and beyond.
The prospects for the subsector of energy generation infrastructure would be even harder hit were Hinkley to be removed. The government has forecast spending of £6.47bn in this area in 2019/20 – but take out Hinkley and this falls by 32 per cent to hit just £4.39bn.
It is a similar story for 2020/21, which would see the value of generation infrastructure works drop by 27.6 per cent to £5.46bn from £7.54bn if Hinkley failed to get the green light.
So where does that leave contractors still waiting to know whether they will be working on the scheme or not?
First of all, it could leave a significant dent in order books: if the work fails to go ahead as planned, pipelines will need to be reassessed to make up for the shortfall.
Training also poses a substantial challenge. EDF says 25,000 employment opportunities will be created over the 10-year construction programme, but many contractors are unable or unwilling to invest in the skills required without clarity on if or when they will actually be needed.
“If the government says no to Hinkley, then quite a few planned gas plants will probably go ahead”
Martin Hewes, Hewes & Associates
One potential silver lining in the event of Hinkley’s cancellation would be the subsequent need to address the UK’s capacity shortfall in other areas – not just through technology such as small modular reactors but also natural gas, according to Mr Hewes.
“[Investors] are looking at gas-fired power stations but they are unlikely to go ahead with them until the uncertainty surrounding Hinkley is put to one side,” he says. “If the government says no to Hinkley, then quite a few planned gas plants will probably go ahead.
“Investors will then feel more confident that they can sell the energy they’ll be generating [from gas-fired plants], whereas now they are sitting on the sidelines wondering, ‘If Hinkley goes ahead, what’s the point in building this?’”
Such potential opportunities, however, are likely to represent only small crumbs of comfort for companies who have been gearing up to deliver one of the UK’s largest mega-projects for the past five years.