|Artist’s impression of Hinkley Point C
Eight reactors planned, cross-party political support, investor interest from around the world and a newbuild project on the cusp of going ahead – the UK is delivering the good news story the nuclear industry has been waiting for. Kelvin Ross reports.
The nuclear industry has taken a battering in very recent years.
Fukushima cast safety fears over the entire sector: projects were stalled while stress tests were carried out, Germany decided enough was enough and pulled the nuclear plug entirely, and the shale boom in the US has led to the shutdown of perfectly good plants.
Meanwhile, European projects underway pre-Fukushima suffered various delays, notably the plants at Flammanville in France and Olkiluoto in Finland.
Yes, there have been nuclear agreements signed in the Middle East and Asia, but the sector is in need of a good news story.
Now it has got one. The bid to build Hinkley Point C, which will become Britain’s first new nuclear power plant in more than 20 years, has taken a decisive step forward.
After more than a year of talks to agree a strike price for the project, the government revealed in October that it will pay EDF £92.50 ($151) per MWh for the new reactor in Somerset, England. This price will drop to £89.50 if EDF goes ahead with a further new reactor at the existing Sizewell nuclear power plant.
The strike price is part of a new market mechanism called Contracts for Difference and is the agreed sum the government will pay EDF for power generated by the plant, and the final figure is almost double the existing price of electricity in Britain.
With the government saying for the past three years that it would refuse to subsidise new nuclear, the strike price is the mechanism by which EDF will recoup the £16 billion it will cost to build the plant.
EDF will hold a a 45-50 per cent stake in the project, with another 30-40 per cent being held by China General Nuclear Corporation and China National Nuclear Corporation, and another 10 per cent by French engineering company Areva, which will design the plant’s reactor.
However, it is not quite a done deal: EDF will not sign off on its final investment decision until the UK government’s Energy Bill – which includes the Contracts for Difference framework – completes its passage through Parliament, and the Hinkley deal passes EU State Aid rules scrutiny. Once these two hurdles are cleared, EDF plans to sign on the line in July of next year and have Hinkley operational by 2023.
|Sizewell: EDF wants to build a new reactor at the site
Energy Secretary Ed Davey insists that the Energy Bill will complete its path through Parliament by the end of the year. We’ll see – watch this space, but don’t hold your breath.
How likely is it that the deal will fall foul of the EU regulations?
Not very, says EDF Energy’s head of Nuclear Newbuild External Affairs Nigel Knee, who points out that the French company would never have come so far with the deal if they believed there was a chance it would be scuppered by Brussels.
Knee says the strike price agreement was “a real landmark in the progress of nuclear newbuild in the UK” – and he is absolutely right.
After months of will-it-or-won’t-it speculation over its signing, the deal gives some clarity and certainty to potential investors in Britains’s nuclear market.
And there is much to invest in. The UK government has eight sites earmarked for development for new nuclear reactors, covering the north, east, south and west of Britain. They are anticipated to be developed by one of three companies: EDF, Horizon and NuGen.
|Hinkley Point C will cost £16 billion
EDF wants to build two reactors at Hinkley Point and Sizewell; Horizon – now owned by Hitachi after it was sold by E.ON and RWE last year – has plans for plants at Anglesey in Wales and Oldbury in England; and NuGen – owned by GDF Suez and Iberdrola – is looking to build at Sellafield.
The benefits of even half of this newbuild programme going ahead are colossal, not just for the UK’s energy and manufacturing sectors, but also for the wider nuclear market, which is beginning to emerge from the long shadow of Fukushima.
Tony Ward, head of power and utilities at consultants EY says that following the announcement the UK is now “materially closer to being able to deliver its first new nuclear station in 25 years”.
“This investment will have a lasting positive impact on the UK’s energy independence, its economy, the local communities and the UK’s low-carbon aspirations.”
And he stresses that agreement on the long-awaited strike price was “one of the most significant enablers to unlock positive investment decisions, not just from EDF at their Hinkley site, but other potential co-investors, and subsequently from other developers, such as Horizon and NuGen”.
“Whilst not the final piece of the jigsaw, this is undoubtedly one of the most significant.”
For Horizon – which hopes to be next out of the newbuild starting blocks after EDF – the Hinkley news could not be more welcome.
“It is a big, big step forward. We are very pleased,” says Leon Flexman, Horizon’s head of corporate affairs. “You can see all the confidence that it has instilled across the industry. The fact that a deal has been done is extremely important for confidence all round because it demonstrates that what has been quite a radical reform of the electricity markets – which is not an easy thing to pull off – can deliver private sector investment in nuclear.”
George Borovas, head of International Nuclear Projects at global law firm Pillsbury, believes the strike price agreement “is a pivotal moment for the UK nuclear industry”.
“Tangible support from governments is one of the most important factors in the development of successful nuclear new build projects.
“EDF has been poised to move forward for some time and other key industry players have been watching the negotiations very closely. This decision could have a positive domino effect on the UK nuclear industry as an uncertainty that has plagued the sector in recent years has finally been removed.”
Borovas adds that the UK “is an environment in which new nuclear can thrive and additional new build projects are likely to follow”.
“The country is now in a strong position to form long-term strategic relationships with the international nuclear industry. It is clear that EDF and Hitachi need to entice investors and the security that both companies can now offer presents a rock-solid foundation they can build on.”
The UK’s Nuclear Industry Association (NIA) believes Britain is now well placed to act as a showcase for nuclear, not just in Europe but also globally.
“Britain is clearly seen as one of the best places in the world to invest in new nuclear,” says NIA chief executive Keith Parker.
“Huge opportunities lie ahead. Over the coming decades, the nuclear industry is set for a global expansion. Around a £1trillion investment is planned globally to build new reactors and £250 billion to decommission those that are coming off line. Added to this is a significant potential market of extending the life of existing nuclear reactors, and enhancing their efficiency – another area of UK experience.”
Horizon’s Flexman agrees that Britain is in an enviable position to trumpet the positive effects of nuclear. “We have cross-party political support and that is a very solid block on which to de-risk prospects for nuclear investment in the UK. The steps to encourage nuclear in the UK have been very good – the licensing regime with the Generic Design Assessment, the reform of the planning framework and the EMR in itself have all been very good in de-risking the projects and removing the barriers to investment.”
He says that if the UK can now “get not just one or two projects, but a whole fleet of new reactors, that is going to be hugely significant for the global marketplace and in particular in Europe.”
The need to develop a fleet and not just a single reactor is also emphasised by Jim Watson, research director at the UK Energy Research Centre. “Building more than one is the key. The worst way is to build only one.”
Watson also wonders if in the future there might be “some element of competition between reactor designs. That might be a good driver of reducing costs.”
Baroness Worthington, the UK shadow spokesperson on energy and climate change in the House of Lords, says that Britain can be an “honest broker” of reactor technologies for the rest of the nuclear industry because there is no domestic reactor design in the mix for the eight shortlisted sites. But she stresses that the UK – which has not built a new nuclear plant since Sizewell B, which came on line in 1995 – needs to get up to speed with the rest of the nuclear market.
“We have got to significantly increase our spend on R&D, which has dropped to almost zero,” she says, adding that it was clear that post-Fukushima, “nuclear needs very sophisticated PR and the more industry embraces innovation, the easier it becomes to tell the story”.
The need for British nuclear innovation is backed by Adrian Bull of the National Nuclear Laboratory, who says: “The UK needs to move into the global [nuclear] world. We need to put a Union Jack on nuclear technology.”
He adds there are lessons to be learned from the UK’s past nuclear achievements and those of France – Britain has built 19 reactors and used 15 different designs, while France has built 58 utilising just three forms of technology.
He believes that the UK had to keep pace with all nuclear developments: “SMRs [small modular reactors], fusion, thorium – we need to make sure we have a foothold in them all.”
|Hinkley Point C will cost £16 billion|
The opportunity for Britain to get back into the game of nuclear manufacturing is echoed by Flexman. “We are not talking about rekindling the whole thing from a standing start, but there is opportunity for UK companies. In the short term, both Hitachi and EDF have said that there is a possibilibility for 58-60 per cent of work to flow to UK companies.”
He says Britain has certainly “lost its ability to manufacture the big specialist nuclear components – steam generators, reactor pressure vessels – and we’d be fooling ourselves to think we could suddenly be able to have a manufacturing capability for that part right away.”
But he adds that “in terms of manufacturing components further down the supply chain, and the civil engineering, there is a sizeable UK opportunity in the short term.”
The NIA’s Parker stresses that the “UK nuclear expertise comes from 60 years of safe delivery of nuclear energy”.
“We have financed, built, operated and decommissioned numerous reactor types and fuel facilities, resulting in a mature and robust nuclear supply chain employing 60,000 skilled professionals to continue across the whole nuclear fuel cycle.”
Parker says that there are “huge opportunities for the UK supply chain to maximise UK content throughout the nuclear newbuild programme. Clearly, this could increase further as companies invest in new skills and opportunities as the programme proceeds, and government and industry are working closely together to facilitate this.”
There is consensus both in and ouside of Britain that Hinkley Point C needs to avoid the delays that have dogged other European reactors at Flamanville and Olkiluoto. “We have to make sure we get it right on time and costs,” says Charles Bray, regional manager for the National Skills Academy for Nuclear. EDF is well aware of these pressures, which is why the company has allowed nine years to get Hinkley from breaking ground to commissioning.
EDF’s Knee says that the company wants the project’s final investment decision signed off by July 2014 and the reactor operational by 2023. And he adds that “we must have a robust design and avoid the temptation to tinker with that design”.
Parker of the NIA says that EDF Energy “has a real incentive to build Hinkley Point C on time and on budget, because until the plant starts generating electricity, it will not start generating revenue”.
“A key aspect of the Contract for Difference deal that was announced on 21 October is that EDF Energy have agreed to a ‘gain share’ arrangement. So if the project is built faster, or more cheaply than expected, investors will share this saving with the consumer through a lower strike price. In addition, EDF have achieved a Generic Design Assessment from the UK regulator, which will help reduce the potential for financial and regulatory risk for operators which could otherwise result in delays during construction.”
There’s a long way to go for the UK’s newbuild programme. Even if Hinkley Point C gets underway on time, the other projects could well be built under a new government, as the next general election falls in 2015, and costs all along the supply chain will fluctuate.
But right now the industry – in and outside of the UK – is savouring the moment and daring to dream that the long-awaited nuclear renaissance is about to become a reality.
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