White Elephant in the Making?

[petagny]

The expert who led the initial assessment of the London Super Sewer now believes that, following huge increases in estimated costs (optimism bias again!) and advances in alternative technologies, the project objectives - basically stopping 'nasties' being flushed into the Thames during torrential rain - could be achieved much more cheaply and that Londoners are not willing to pay for this level of investment. According to this article our Victorian sewers are still holding up very well indeed:

http://www.theguardian.com/environment/2014/nov/27/london-super-sewer-branded-waste-time-money

Thames Water are keen on the investment (there will be a built in return on investment for their shareholders in the costing and commensurate increases in water tariffs for Londoners) and even keener since the government has guaranteed to cover cost overruns!

One might ask whether this private sector project is in the domain of public investment management. The fact that there are government guarantees involved means that such a  project must be captured within a country's PIM system. Could one also argue that, because it involves a regulated, monopoly provider of network-based services for which investment costs are automatically passed on to users whether they like it or not, the project should be subject to similar scrutiny as run-of-the-mill public sector project, even without the guarantees?

[STONE]

White Hot Elephant in the Making?

Is the build of Hinkley Point  C nuclear power station another White (Hot) Elephant?  EDF, 85 per cent French Government owned, is to build untried technology power stations with a generous UK Government guarantee  of its income flow.  The notion that this is a private sector issue when both Governments are adopting 'a too big to fail' thought train seems just daft.

[petagny]

The signs are not good. The forerunner projects in Finland and France are both late (by 9 and 6 years, respectively) and over budget (and by euro 5.2 million and euro 7.2 million, respectively). The public will be locked into paying a tariff for electricity which is a multiple of the current price and if for any reason the plant is closed before the planned date of obsolescence, the public has to pick up the clean-up bill.

http://www.ft.com/cms/s/0/a31b76ae-ec2a-11e5-888e-2eadd5fbc4a4.html#axzz43AjUGKl4

[John Short]

This was discussed recently in the Energy and Climate Change Committee of UK Parliament

http://parliamentlive.tv/Event/Index/f5784149-1395-4223-a646-c08fa6895795

[petagny]

According to yesterday's FT, 'Senior engineers at French utility EDF have called for at least a two year delay at the controversial Hinkley Point nuclear project in the UK and recommended a redesign of the reactor technology...' because it '...is so complex and untested...'. But a timely start-up is vital for the Government to meet the target of closing the last coal-fired power station by 2025. EDF management on the other hand seem relaxed because of the guaranteed revenue stream: 'One person on the EDF board...said: “Few believe that we can build this [Hinkley Point] by 2025 any more.” Another person close to the group said that 2025 was set to remain the official target, but the final decision could incorporate a margin for error because even with a two-year delay the project would still be profitable.'

The same newspaper earlier in the week reported that it is actually cheaper to use demand management measures (shifting the peak demand for electricity) than to build new capacity. But this requires installation of smart meters, where the distribution companies are way behind in meeting targets...I wonder why!

I must confess a personal interest in this story. I participated in studies to look at environmentally sensitive access routes for construction materials, plant and equipment for construction of this project...in 1987!

[petagny]

Now a rival group of engineers from EDF have come out in support of Hinkley Point C, writing  (according to the FT): “We are convinced that EDF is able to build and deliver the two Hinkley Point reactors on time … Hinkley Point is politically, economically and industrially, one of the most significant projects of our era.”

https://next.ft.com/content/39bf1002-fd60-11e5-a31a-7930bacb3f5f

My money's with the first bunch!

[petagny]

Here's a really good account from Simon Jenkins of how white elephants are born. Note the warnings in the Eddington report and the lessons not learnt (from HS1). Also see the comments from Stephen Glaister on how the economic case 'developed':

“HS2 was investigated against standard benefit-cost analysis for roads and other public projects,” Glaister told me. “When the economic appraisal didn’t wash, other arguments about wider social benefits started to be used, such as the north-south divide. When that didn’t stack up, they started talking about capacity. When even that didn’t give the right answer, the project became politically totemic.”

Boys and their train sets!


http://www.theguardian.com/uk-news/2016/jun/07/hs2-the-zombie-train-that-refuses-to-die