Hinkley Point C
Hinkley Point C: an artist’s impression of what the completed site will look like if developed by EDF
Credit: EDF

The UK nuclear newbuild programme is the most eagerly anticipated in Europe, with global players eyeing a stake in the potential multi-billion bonanza. But some believe delays in the process are damaging Britain’s potential for international investment and its own supply chain companies, writes Kelvin Ross.

We are on the cusp of a newbuild renaissance.

Michael Fallon
Michael Fallon: “We expect billions to be invested once the Energy Bill is passed”
Source: MichaelFallon.org

These were the words of UK Energy Minister Michael Fallon at the World Nuclear Association’s (WNA) recent annual symposium in London.

And he is not wrong to make such a claim. The UK government has eight sites earmarked for development for new nuclear reactors, covering the north, east, south and west of Britain. They would be developed by one of three companies: EDF, Horizon and NuGen.

EDF wants to build two reactors at Hinkley Point and Sizewell; Horizon – owned by Hitachi after it was sold by E.ON and RWE – has plans for plants at Anglesey and Oldbury; and NuGen – owned by GDF Suez and Iberdrola – is looking to build at Sellafield.

Yet when Fallon delivered his speech there was an elephant in the room – the strike price talks between EDF and the government over the planned new reactor at Hinkley Point. The strike price is a cornerstone of the government’s Electricity Market Reform (EMR) package – part of the Energy Bill which is making its way through the parliamentary process. It is an agreed baseline sum that the government agrees to pay generators of nuclear power for their electricity.

The most far advanced of the proposed new reactors – it is ‘shovel-ready’ we are constantly told – is EDF’s Hinkley Point C: Hinkley A and B already exist. If built, it will be the first new nuclear plant in Britain for decades.

As such, the strike price with EDF will set a benchmark for all other potential new nuclear players and provide certainty of other developers and investors to go ahead with their plans.

Ed Davey
Ed Davey: the UK Energy Secretary has been locked in talks with EDF for almost a year
Credit: DECC

However, negotiations between EDF and the government’s Department of Energy and Climate Change (DECC) have dragged on since last year. No-one is suggesting that the deal can be struck over a cup of tea in the afternoon, but the prolonged process is beginning to frustrate many in the industry.

Vincent de Rivaz
Vincent de Rivaz: the EDF boss says the final strike price will “pass the trust and transparency test”
Credit: EDF

When EDF Energy boss Vincent de Rivaz appeared at a hearing of the government’s Energy and Climate Change Committee earlier this year, he made no apology for trying to secure a “reasonable profit” from the strike price negotiations.

de Rivaz assured MPs that the final strike price result would “pass the trust and transparency test” but stressed that it was simplistic to assume that any company would enter strike price talks without planning to get a “fair deal”.

“Yes, we are going to ask for a reasonable profit,” he said. “We are a force for good. It is time to respect investors.”

Of course he is right – EDF must get what it judges to be the best long-term deal possible from Hinkley: conversely, the government is not about to agree to what it feels to be a too-high price just to secure EDF’s go-ahead.

How advanced are the negotiations? Pretty advanced, one would hope, given they have been ongoing for the best part of a year now, but both EDF and DECC remain tight-lipped about what stage they are at.

In his speech at the WNA Symposium, all Fallon would say was that “both sides remain committed”. He went on to stress that the UK was attracting significant nuclear interest from Japan, Korea and Russia, while at the same event Wang Binghua, chairman of China’s SNTPC, told the audience that his company was also looking at opportunities in the British market.

Fallon added that “it is the government’s role to provide certainty” to investors and claimed this was what it was doing with its Energy Bill: “We expect billions to be invested once the Energy Bill is passed.”

But some now wonder if EDF is hanging on for the bill to enter law – with all its ‘i’s dotted and its ‘t’s crossed, before it makes its final investment decision on Hinkley.

Meanwhile, some in the industry say the wait is damaging the UK’s nuclear market.

George Borovas   George Borovas, head of International Nuclear Projects at global law firm Pillsbury, believes: “The continued delays to these negotiations will potentially undermine the international perception of the UK’s nuclear sector.” He also expressed concern that the longer the talks go on, the greater the risk becomes of damage to the UK as a destination for investment.
George Borovas: warns that the perception of UK nuclear as “an advantageous investment market is now dissipating”
Source: Pillsbury

 

“Traditionally the UK has been viewed as an advantageous market due to a strong political commitment to new nuclear – this advantage is now dissipating,” he adds.

“New nuclear projects will struggle to move forward without investors and a tangible commitment from the UK government. With each month that the strike price decision is delayed, the perceived project risk increases and the prospect of enticing necessary international investment diminishes.”

Borovas believes that “opportunities for the UK nuclear industry to participate in newbuild in its home market – such as job creation and the development of both strategic relationships and technical competencies – are threatened if newbuild does not take place at home”.

One such domestic company with a lot riding on the outcome of the strike price talks is Rolls-Royce. It has strategic partnerships in place with five key potential players in the UK nuclear industry: Areva, EDF, Hitachi, Westinghouse and Rosatom.

So Rolls-Royce is in line for a multi-billion business boost if EDF goes ahead with Hinkley Point and the UK nuclear newbuild programme gets off the ground.

“We believe that the UK government and EDF are working hard to make it happen,” says Debbie Hampton, Rolls-Royce’s nuclear external communications manager.

And what if it doesn’t happen? Does Rolls-Royce have a Plan B? “Rolls-Royce has a wealth of transferrable nuclear skills and expertise,” says Hampton.

“We have a robust nuclear portfolio which includes our leading safety instrumentation and control business [which among many others includes all 58 reactors in France] and a nuclear services business that has a strong foothold in the US market and a growing foothold in the European market.”

At the WNA Symposium, Westinghouse chief executive Danny Roderick was upbeat not just on the EDF strike price talks but also on his company’s chances of bringing its reactor to the UK – and doing it ahead of the EPR reactor.

“Everyone is interested in EDF getting a strike price because it creates a gate, and then you have to decide, ‘can you drive through the gate’? If the strike price becomes low, then some companies won’t be able to go through that gate.

“With our experience of bringing units in on our cost and schedule duration, anything the EPR can create as a gate we can get through without a problem.”

“I think we can give the EPR a couple of years’ head start and still finish ahead of them.”

Bullish words, but those sitting in the UK watching the snails-pace nuclear newbuild developments are less upbeat.

Tim Fox, head of Environment and Energy at the Institution of Mechanical Engineers, has gone from upbeat to quietly despairing of the UK nuclear market in recent years.

“When the government published its long awaited White Paper on energy policy in 2008, nuclear was put firmly back on the UK’s electricity generation agenda,” he says.

“A ‘nuclear renaissance’ was declared as construction and engineering contractors teamed-up in anticipation of substantial commercial opportunities and in 2010 the first tenders were issued for preparation and construction work at Hinkley Point. Many of the major contractors fought bitterly for years to win these high-profile projects yet still, very few contracts have been let.

“The reason why is because the projects are still not certain: the business case for these enormous capital investments is dependent on assurances from the government about Electricity Market Reform, assurances which have as yet not been given.”

He says that even if a contract and strike price are agreed, “EDF will then need to convince investors that the [Hinkley] project is both viable and attractive. Potential investors from China will be seeking financial assurances and a piece of the construction action.”

Meanwhile, he says, the contractors and suppliers “will still be waiting for the work to start – some have had their delivery teams ‘ready to go’ for more than a year already.”

Olkiluoto reactor
The lid is put in place on the Olkiluoto reactor built by Areva in Finland. Areva is hoping to build similar reactors in the UK
Credit: Areva

With the Areva reactor design to be used at Hinkley licensed earlier this year and planning permission for the site granted in March, he adds that “EMR is now the main hurdle”.

“As a result of the delay, the site at Hinkley Point was mothballed over the summer and the local community and the big contractors have become disappointed and disillusioned. Project teams have been disbanded and skill has moved to other, more certain projects.”

He says Horizon owner Hitachi will be “watching the strike price discussions carefully, not least because they reflect the government’s real level of commitment to nuclear power and international investment in the UK’s electricity supply system. The longer the discussions are drawn out, the less confidence everybody will have. “

Is Fox confident of a happy ending? “With three energy ministers involved in the negotiations over the past 12 months, there are questions about leadership of UK energy policy in government, as well as its commitment to a low-carbon future. And all the time we are getting closer to a UK generation capacity shortfall.

“Let us all hope that negotiations will be concluded and investors found soon, but don’t expect the UK supply chain to rush in – having been kept waiting for years, contractors have moved on to other things and will certainly want to see the colour of the money before they re-mobilise their teams.”

Asia set to lead nuclear global boomy

If the UK government needed some reading material to focus its mind on what is happening in the nuclear world while Britain stands still, it came in the form of a report last month.

The study stated that around 103 new nuclear reactors will be built in the Asia-Pacific region by 2025, which will cement the region’s dominance in the global nuclear market.

The report from research firm GlobalData identified China and India as the nuclear powerhouses in the region, stating that between them they will account for more than 60 per cent of the reactors planned to come on line worldwide by 2025.

GlobalData calculated that the nuclear installed capacity in Asia-Pacific rose from 67 GW in 2000 to 88 GW last year, and it predicts that it will rise to 187 GW by 2025.

Among the emerging nuclear countries, the report finds that Turkey is expected to install the greatest nuclear power capacity by 2025, with six large reactors planned. Vietnam also intends to build six reactors, although these will be smaller than those in Turkey.

The study states that other regions will also see an increase in installations, with 88 reactors in Europe, 24 in North America, eight in the Middle East and Africa, and three in South and Central America by 2025.

Major funding challenge

Pranay Srivastava, GlobalData’s associate power analyst, said the key global drivers of nuclear energy are “burgeoning power demand, increasing fossil fuel prices, the need to mitigate greenhouse gas emissions and the low cost of electricity generation that is associated with nuclear”.

“However, the global nuclear power industry is facing a major challenge in funding. New government policy changes, which are backed by a fear of radiation and anti-nuclear public opinion, have caused uncertain market conditions, whereby investment in nuclear projects is deemed increasingly risky.”

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