EDF still at table but nuclear could be critical for Osborne

The UK’s nuclear energy strategy will be in meltdown if the French pull out of Hinkley. The best guess is, they’ll find the cash

What if EDF says no to Hinkley Point? What if the French power generator, under pressure from its unions and potential lenders, decides it can’t finance the £18bn project, even with the Chinese chipping in?

After all, the disgruntled French workers make a reasonable point. EDF’s last big foreign adventure, in Finland, is nine years behind schedule and massively over-budget, so why risk another expedition? EDF’s share price, remember, is down 85% since 2004: the company is in a weak position to resist its local critics.

The short answer is that the UK’s nuclear strategy would be in tatters if EDF backs out. If EDF can’t get financing for Hinkley, then Sizewell C, the company’s intended follow-on project in Suffolk, would also bite the dust. The same goes for the next plant at Bradwell in Essex, where Chinese constructors are supposed to be taking the lead but are relying on Hinkley’s and Sizewell’s infrastructure and momentum.

And, if the UK’s nuclear strategy becomes a non-runner, then the government’s entire energy policy is dead. By the mid-2030s, Hinkley and other new nuclear plants are supposed to have replaced the current clapped-out fleet and added capacity on top.

Onshore wind couldn’t fill the gap, and anyway the government hates turbines on land. Offshore wind is currently more expensive than nuclear. Building a new generation of gas-fired stations would, almost certainly, mean missing the legally binding targets for reducing carbon emissions.

George Osborne could, of course, decide that the Treasury should finance Hinkley, but that would be a monumental U-turn. It would mean abandoning the core principle that Hinkley’s costs must be kept away from the public debt. UK taxpayers would be exposed to the same potential cost overruns that are causing so much angst at EDF.

The position is not yet that dire for the government. EDF is still at the table and the French government, when push comes to shove, tends to be supportive. The best guess – still – is that the funds will be forthcoming.

If not, Osborne’s difficulty with Google’s tax bill would look like a storm in a tea cup. All the subsidies, and the grovelling for Chinese cash, would have yielded nothing except proof of the horrible economics of nuclear power in the 21st century.

Worst is not yet over for RBS

Put away the bunting. Royal Bank of Scotland will not be announcing a profit for 2015 next month. In truth, such an outcome was already an outside bet, but chief executive Ross McEwan removed all doubt on Wednesday by serving yet another dish of write-offs and provisions, covering payment protection insurance, the Coutts private bank and mortgage-backed securities in the US.

By way of novelty, there was an unfamiliar side order in the form of £4.2bn to cover the deficit in the pension fund. That doesn’t hurt the profits line, but the others all do. It will be the eighth year of losses.

Can shareholders – in other words, us – dare to dream that the worst is over? Not yet. When finance director Ewen Stevenson speaks of “a few more bumps” this year, neither he nor anyone else can know whether the biggest bump will throw RBS into a ninth year of losses. The big unknown is the settlement with the US Department of Justice on those same mortgage securities. It could be £2bn, but could be £6bn, and current provisions cover only non-DoJ actions.

RBS can absorb the latest hits, and even the DoJ’s heftiest blows, because its capital position is strong. The City, though, had started to dream of dividends or a share buyback in 2017. Those hopes are still alive but Wednesday’s fresh scars are a serious setback.

George Osborne, in retrospect, did well to flog 5% of RBS shares at 330p last August. But, at today’s 256p, a three-year low, he only has one option: sit back and wait – again.

Shell’s BG suit wears thin for dissenters

Ben van Beurden, Shell’s chief executive, says he is “delighted with the positive shareholder vote and the confidence that shareholders have shown in the strategic logic of the combination of Shell and BG”.

Well, yes, 83% is an overwhelming majority, but 17% dissent is on the high side. Shell is a corporate titan and this was, in effect, a vote of confidence in the board’s judgment. The company also had some of the world’s most powerful investment banks acting as whippers-in.

The real test is where Shell stands in two years time and whether it can maintain its dividend. Van Beurden knew the sliding oil price made his BG pitch harder to sell – but he would surely have hoped to keep the scepticism in single figures.


Nils Pratley

The GuardianTramp

Related Content

Article image
Shell still has to prove its BG Group takeover is a slick deal
As its £55bn purchase moves closer, falling oil prices mean Shell’s offer is less compelling than when first announced

Nils Pratley

02, Sep, 2015 @7:09 PM

Article image
Energy companies have lent more than 50 staff to government departments

Oil and nuclear industries' presence throughout Whitehall exposed by Green MP, who warns of undue influence on policy

Damian Carrington

05, Dec, 2011 @5:57 PM

Article image
Time for Shell boss to master art of renegotiation
While it would be embarrassing for Ben van Beurden to push BG Group for better terms at the 11th hour, embarrassment should not enter the equation

Nils Pratley

14, Dec, 2015 @7:25 PM

Article image
Why Spain's hung parliament won't dent the economy … yet
A 3% growth rate, the low oil price, a weak euro and no party advocating a eurozone exit meant markets had no cause to panic at the dramatic result

Nils Pratley

21, Dec, 2015 @7:03 PM

Article image
RBS pulls back fossil fuel investments as green deals grow
Figures show bank cut investments by 70% in oil and gas firms in 2015 and doubled UK green energy loans to £1bn a year

Damian Carrington

17, Apr, 2016 @12:44 PM

Article image
Shell shows prudence on dividend, but no remorse on $16bn share buybacks | Nils Pratley
As coronavirus sorts stock market winners from losers at startling speed, buybacks prove costly

Nils Pratley

30, Apr, 2020 @6:51 PM

Article image
Europe's energy big six say gas must help in the fight against climate change
BP and Shell involved in rare public public intervention by energy giants aimed at influencing UN climate talks

Jennifer Rankin

01, Jun, 2015 @8:04 AM

Article image
Treasury keen to sell part of its stake in Lloyds Banking Group
Fancy financial footwork over the bailout suggests that the government is anxious to offload some of its shareholding

Nils Pratley

01, Mar, 2013 @7:54 PM

Article image
Shell to shed further 2,800 jobs after BG takeover
Cuts will affect 3% of global workforce as Anglo-Dutch oil giant seeks to cut costs to cope with oil price slump and rationalise operations after £40bn deal

Sean Farrell

14, Dec, 2015 @12:38 PM

Article image
BG and Shell could be just the first of many energy mergers
The halving of the oil price could herald a rash of mergers and acquisitions in the energy sector

Larry Elliott

08, Apr, 2015 @5:31 PM