David Cameron could barely hide his glee. In June 2014, the then prime minister welcomed Chinese premier Li Keqiang, who signed a string of trade and investment deals totalling £14 billion.
“Even Dave looked as if he had won the lottery,” wrote Sasha Swire, the partner of the foreign minister at the time, Hugo Swire, in her book Diary of an MP’s Wife.
“Ker-ching, ker-ching went the cash registers, roll up, boys, let’s sell our souls to the devil while we’re about it,” she said of the British officials in Downing Street rubbing their hands.
“GO [former chancellor George Osborne] has not only put out the red carpet, he is lying on it and they are trampling all over him,” she added.
The deal bonanza came a year before the Chinese agreed to pump billions into Hinkley Point C in a move that was meant to revive Britain’s nuclear industry, ushering in a new Sino-British golden era.
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That vision is long gone and the future of the UK’s nuclear industry is up in the air after reports that the government is exploring ways to remove state-owned China General Nuclear (CGN) from the proposed £20 billion Sizewell C nuclear plant on the Suffolk coast, amid mounting concerns about Beijing’s influence in critical infrastructure projects.
CGN is a minority investor with France’s EDF in the Hinkley Point C nuclear plant in Somerset and will also be a junior partner on Sizewell C. However, the grand prize is to be the controlling shareholder of the Bradwell B plant in Essex, where CGN wants to install its own reactor technology, currently going through regulatory approval in the UK.
If the government removes CGN from Sizewell, the Chinese could pull out of all three, leaving a multibillion-pound black hole in Britain’s nuclear plans.
Steve Tsang, director of the SOAS China Institute at SOAS University of London, said allegations of genocide against Uighur Muslims, and the new Hong Kong security law, meant that China could not be trusted as a partner. “When we are dealing with issues like UK infrastructure, ultimately we have to have the confidence — not just now or for the next ten years, but for the next four or five decades — that the partnership with China will be strong enough ... And that confidence has become very difficult to sustain in the last few years,” Tsang said.
Tom Tugendhat, chairman of the foreign affairs select committee and the China Research Group, said: “We need to trust the companies and countries that power our countries. The reality is that CGN’s links to the Chinese government mean that we can’t rely on that trust.”
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Relations with China were already chilling after telecoms giant Huawei was banned from playing a role in building Britain’s 5G network. And last month, the prime minister’s national security adviser was instructed to review the takeover of Britain’s biggest chip factory, Newport Wafer Fab, by Chinese-owned Nexperia.
But it is China’s involvement in Britain’s nuclear industry that has often raised the biggest concerns.
In 2015, Cameron and Osborne rolled out the red carpet for President Xi Jinping on his state visit — the crowning moment of which was when the two sides confirmed a landmark deal under which China would inject billions into Britain’s nuclear revival. CGN was to take a 33 per cent stake in Hinkley, which would be led by EDF, to help build a 3.2-gigawatt plant generating about 7 per cent of the UK’s entire electricity. It would take a 20 per cent stake in Sizewell C in a similar deal, but would become the lead developer at Bradwell B and use its own Hualong HPR1000 reactor technology. The plan was to ratify the tech in the UK and roll it out around the world.
Some believe that the UK will plough ahead with nuclear power even without the Chinese backing, given the government’s target to become net zero by 2050.
Tim Yeo, the former Tory environment minister who chairs industry-supported think tank the New Nuclear Watch Institute, said: “We need a significant nuclear element in the energy mix if we’re going to get to net zero in the time frame that is necessary — and that means having these new plants built.”
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One way in which the government might attract new backers to replace Chinese money would be by introducing a regulated asset base (RAB) funding model. Usually reserved for capital-intensive sectors such as water and energy where monopolies exist, RAB takes the risk away from the developer and piles it on to consumers through higher bills during the construction phase. The RAB model was used to support the Thames Tideway “super sewer”.
The government launched a consultation in 2019 on whether to introduce the model for nuclear to finance new projects, but has yet to reveal its plans.
Hinkley Point C, the first new nuclear plant being built in the UK in more than 20 years, and set to cost an already inflated £22.5 billion, is being financed through a contracts-for-difference (CfD) model that guarantees the developer a minimum price — but, unlike the RAB model, does not cover the costs of construction. Households will pay a guaranteed £92.50 per megawatt hour for electricity from Hinkley for 35 years.
Sizewell C could be financed through the RAB model, which, with China potentially out of the picture, could become crucial to attracting new investors. However, nuclear opponents argue that it would mean huge costs for consumers.
Steve Thomas, professor of energy policy at Greenwich University, said: “On Hinkley, intuition says it cannot possibly be abandoned now — but all logic says it should be abandoned now. You can’t imagine that after 15 years, the government is going to say, ‘Sorry, we made a mistake with this.’ But the reality is that it will be the most expensive power on the system, so from a consumer point of view, it will be awful.”
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A paper authored by Thomas with Alison Downes of the pressure group Stop Sizewell C estimated that using the RAB model could pile more than £500 on to household bills during the construction, assuming cost overruns and delays.
However, the Nuclear Industry Association argued in its submission to the government’s RAB consultation that while consumers would bear the brunt of construction costs, “the lifetime consumer benefit which results from a reduced cost of capital, and a significant increase in the likelihood the UK will reach net zero by 2050, should outweigh the short-term risk of cost to consumers”.
Last October, when he was energy minister, Kwasi Kwarteng admitted that multibillion-pound liabilities could end up on the government balance sheet using the RAB model, which had led it to consider taking a stake in Sizewell C so it could benefit from the “upside” of a possible return on its investment.
The government offered to take a one-third equity stake in Hitachi’s Wylfa plant in Anglesey but the Japanese firm pulled the plug last year.That came after Toshiba confirmed it was winding up its UK nuclear business, which had plans for a new station in Cumbria. A nuclear source said Wylfa would be “back on the agenda” if the RAB model was introduced.
But the government would face opposition to taking direct stakes in nuclear.
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“The critical test will be whether this government sticks to the deal and keeps the British taxpayer out of this,” said Sir Ed Davey, the former energy secretary and now Liberal Democrat leader.
“Anything that passes nuclear’s costs on to the taxpayer — costs like nuclear waste management, nuclear station decommissioning, or delays and cost overruns — will be a total betrayal of taxpayers and cost every household in Britain a small fortune,” he added.
Davey wants the focus to be on renewable sources such as wind and solar.
Unplugging China from Sizewell could open the door to American pension funds to invest. In 2019 the US blacklisted CGN at the height of the trade war with China, putting it on the “entity list” for allegedly attempting to get hold of nuclear technology for military use.
But many see limited appetite from the US, while many funds in the UK, such as Aviva and Legal & General, have already ruled out participating in nuclear amid environmental concerns and an increasing focus on renewable energy.
Sources told The Sunday Times that EDF was also keen to eject CGN from Sizewell, as its involvement was becoming a block on securing further investment.
Thomas at Greenwich University said: “The problem is going to be finding investors who think the project [Sizewell C] is attractive enough, whilst at the same time not dumping huge amounts of risk on to consumers. And I don’t see how you can square that equation. All the experience in the past 20 years says that costs are going to go horribly over budget and construction times are going to be horribly delayed. Who’s going to take that risk?”
How Beijing built its atomic empire
A memorandum of understanding on nuclear in 2013 paved the way for close ties between China and the UK. Two years later, on his state visit, President Xi put his money where his mouth was.
China General Nuclear (CGN), one of China’s state-owned nuclear power giants, agreed to take a 33.5 per cent stake in Hinkley Point C in Somerset, with EDF the majority shareholder. It also agreed to take a 20 per cent stake in Sizewell C in Suffolk, with EDF again having the rest. But the main prize was Bradwell B in Essex, where CGN would be the majority shareholder with a 66.5 per cent stake. Crucially, it would use its own reactor technology, which is going through the approval process in the UK. That would help to give it the rubber stamp needed to export the technology around the world.
CGN also has a wind energy arm, which is behind three UK wind farms: Green Rigg in Northumberland; Rusholme in Yorkshire; and Glass Moor II near Peterborough. In 2014 CGN bought 80 per cent of the three projects from EDF, which takes power from them and still owns 20 per cent.
