UK closes nuclear deal with EDF

22 October 2013

The UK government and the French state-owned EDF Group have reached commercial agreement on the key terms of a proposed investment contract for the Hinkley Point C nuclear power station in Somerset, the first nuclear new build in the UK since Sizewell B started up in 1995. The French utility expects to make a final investment decision on the £16 billion project by July 2014. The main features of the deal are an inflation protected strike price set at £89.50/MWh rising to £92.50/MWh if a second plant, Sizewell C, is not built; and the prospect of Chinese companies taking a 40% stake in the project. Supplier agreements have been signed with Bouygues TP/Laing O'Rourke, Costain, Alstom and Areva. The construction risk is being borne by the developer, but the financial risk is underwritten by the UK government in the form of a £10 billion loan guarantee.

Strike price
Terms of the agreement include the strike price of £89.50/MWh ($145 or EUR105) which guarantees the purchase price of electricity for 35 years from commissioning (the differential with the wholesale price to be met ultimately by the consumer) which will be linked to inflation via the consumer price index and reviewed at regular intervals. There is a provision for 'cashback' from the developer if the wholesale price should rise above the strike price.
EDF Energy, which expects to see a rate of return of around 10% from the Hinkley C construction project, described the investment contract as 'balanced'. It will give investors the confidence to invest in a new nuclear power station that is capable of providing the UK with 'secure, reliable, low carbon electricity at a fair price for consumers', EDF said.
Twin EPR reactors at Hinkley Point C 'could meet around 7% of the UK's electricity demand when running at full capacity' says DECC. This is somewhat disingenuous. What it means is that at full bore the plant could meet 7% of demand when it stands at 45 GW or less. The 3260 MW power station is expected to complete commissioning of the first unit in 2023, EDF said. Preliminary works for the Hinkley project are well advanced.
The UK's Department of Energy and Climate Change (DECC) said that building a new fleet of nuclear power stations 'could reduce bills by more than £75 a year' in 2030, compared to a future where nuclear is not part of the energy mix.

Chinese investors confirmed
Letters of Intent have now been signed with potential investment partners in the project, including two Chinese companies. EDF Group is expected to take a 45-50% equity stake, with AREVA at 10%, while China General Nuclear Corporation (CGN) and China National Nuclear Corporation (CNNC) will likely share a 30-40% stake.
"Discussions are also taking place with a shortlist of other interested parties which could take up to 15%," EDF said. It did not name those involved.
EDF, which has been working with the Chinese companies for over three decades, said that a number of suitably qualified Chinese personnel would join the project to work alongside members of the project team, subject to the usual approvals from the UK regulators.

'Great for Britain'
"This deal means £16bn of investment coming into the country and the creation of 25 000 jobs, which is brilliant news for the South West and for the country," said UK prime minister David Cameron. "As we compete in the tough global race, this underlines the confidence there is in Britain and makes clear that we are very much open for business."
EDF puts the cost of constructing the twin EPR nuclear power station at £14 billion ($22.6bn) in 2012 currency. Other cost related to the project amount to around £2 billion, and relate to land purchases, achieving the different consents, construction of a spent fuel storage facility and preparing the 900 strong team which will run the station.
The project is expected to create 25,000 jobs during construction, with 900 permanent jobs during the 60 years of operation, according to EDF. Up to 57% of the project's construction value could be spent in the UK, building skills and expertise, which will help the country win a greater share of nuclear programmes nationally and globally, the UK Nuclear Industry Association said.

Key suppliers
The signed up suppliers are Bouygues TP/Laing O'Rourke (civils), Costain (marine work), Alstom (turbines) and AREVA (for I&C, NSSS and fuel).
Bouygues TP/Laing O'Rourke is confirmed as the preferred delivery partner for the main civil engineering and construction contract valued at over £2 billion. The construction programme will require 3600 operatives and 800 staff, it said. Costain will provide the design and delivery of the water-cooling systems. This includes design and construction of three 11 km long marine tunnels to take in water from the Severn Estuary. Both companies said work would commence as soon as possible following the final investment decision.
Alstom expects to supply two 1750 MW conventional islands based on its Arabelle steam turbines for Hinkley Point C, together with other non-nuclear construction work. Alstom said that "at least one third" of the project will be UK content. UK teams will erect the turbine generators, and service them throughout the lifetime of the project.
A contract has also been agreed with reactor vendor Areva for instrumentation and control, the nuclear steam supply system (which includes the reactor vessel and pressuriser), and the nuclear fuel.
The final investment decision is dependent on three main factors - agreement of the full investment contract, finalising agreements with industrial partners for equity funding and with Infrastructure UK for debt funding, and a positive decision from the European Commission on state aid.


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