LONDON (Reuters Breakingviews) – China and Britain are increasingly at loggerheads. Beijing is unhappy with Britain’s decision to offer up to 3 million Hong Kong citizens the right to live and work in the United Kingdom. Meanwhile, Prime Minister Boris Johnson looks increasingly likely to ban equipment made by China’s Huawei Technologies from British 5G mobile networks. The two countries’ collaboration on nuclear power stations could be the next flashpoint.
Just as with telecom equipment, Sino-British nuclear power ties are deeply intertwined. China General Nuclear Power (CGN) holds a 30% equity stake in a company that is building the 20 billion pound Hinkley Point C power station in the west of England. The state-owned Chinese group also has an option to acquire 20% of another planned plant at Sizewell C in Suffolk, and a majority stake in an entity looking into several more. The projects are integral to Britain’s ambition to decarbonise its energy supply by replacing the fifth of electricity provided by ageing, soon-to-be-decommissioned nuclear plants.
The current relationship has mutual benefits. The UK gets zero-carbon energy without upfront cash, plus Chinese expertise on the Hinkley design, a version of which is already operating in the People’s Republic. Successfully delivering British power stations would help Beijing secure other foreign nuclear projects.
Still, the arrangement has its detractors. Britain’s National Audit Office has criticised the government for guaranteeing to pay CGN and state-backed partner Electricite de France $92.50 per megawatt hour – well above the prevailing cost of power – to take on the risk that the plant is late or over budget. Had Britain shared the construction risk with consumers via their bills, the cost of capital could have been half the 8%-plus offered to CGN and EDF. It would be cheaper still if the state had financed the entire project itself.
It’s possible for the two sides to consciously uncouple. Beijing could let its options over future UK power stations lapse, for example. Rethinking the Hinkley project would be much more complicated. Even then, the UK could buy out Beijing’s stake, or promise it a share of the cash flows in return for a less engaged role.
UK power planners, CGN and EDF will prefer to maintain the status quo. But given the rising tensions between Britain and China, the risk of a meltdown is rising.
Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a…
Read More: Breakingviews – China-UK feud could spill over into nuclear power