Bloomberg Gadfly Weighs In On Hinkley Point C -- September 16, 2016

By now everyone should have heard about the new nuclear power plant the UK approved earlier this week. Bloomberg has a great essay from a contributor regarding this project. There are some interesting graphics at the link. The article begins:

It is a reasonable bet that the $24 billion Hinkley Point C nuclear power project in the U.K., due online in 2025, will neither be ready by 2025 nor cost just $24 billion. Indeed, it's so reasonable that, as fellow Gadfly Chris Bryant lays out here, the stock market appears to be making that very same bet.

Leave aside the also reasonable conspiracy theories about London buttering up Paris and Beijing by approving the project and focus on the ostensible reason for doing it: maintaining security of energy supply.

That's been a big theme this week. On Wednesday, the International Energy Agency released a hefty tome concluding, among other things, that "the scale and speed of cuts" in upstream oil and gas investment mean we could be caught out by price spikes again, despite $583 billion in spending last year. It's curious that, despite this apparent need for investment, oil majors continue to pull back.

Hinkley Point actually helps explain why. Added bonus: The oil and gas industry's experience reveals one more insidious risk facing the nuclear project.

There's a reason EDF demanded the U.K. government guarantee an electricity price for Hinkley Point's output at double the current wholesale price. Financing a $24 billion project that won't produce a cent of revenue for a decade is really tough -- especially in an industry carrying as much historical baggage on busted budgets and timescales as nuclear power does. Subsidies and guarantees help bridge the risk gap.

This is what concerns the contributor (this graph is an interactive graph at the linked article):

But this is where the "gadfly" is wrong: as big as this project is, it will only account for 7% of UK's energy (electricity) needs. Seven percent.

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The Market

Mid-afternoon: the market continues to sink. It's hard to see the Fed raising rates with what I see now. Oil continues to sink, not below $44. 

Open: looks like another challenging day for the market. Having said that, SRE, SHPG, XLNX are all up a bit. BRK-B is down a bit.