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With the EC approving plans for Hinkley Point C power station, Kelvin Ross looks at what the decision means for the UK and the wider global nuclear market

To say that there is a lot riding on the successful building of Hinkley Point C nuclear power plant in the UK is an understatement.

The EDF-owned plant is intended to help address Britain’s security of supply concerns. The UK currently has 16 reactors with a total generating capacity of 10 GW.

These plants generate around a sixth of the UK’s electricity yet all but one will be retired by 2023. The exception is Sizewell B, the UK’s only pressurized water reactor (PWR), which began operating in 1995 and was the last nuclear plant to be built in the country.

Paul Spence, EDF’s director of strategy and corporate affairs, says that energy security has become high-profile in the last 12 months and “that has reminded the public, politicians and the industry how important security of supply is to our economy. Hinkley Point is intended to play a part in that security of supply.”

But successful delivery of Hinkley will also validate the new energy regime set up by the UK government in its Electricity Market Reform package; the reactor technology involved – Areva’s EPR, which has been dogged by delays elsewhere – as well as the whole future of nuclear power in Europe.

Oh, and then there is the fact that Hinkley would revive and boost a whole domestic nuclear engineering skills base as well as open the door to technology from overseas, particularly China, as two engineering firms, China National Nuclear Corporation and China General Nuclear Power Corporation, both hold stakes in Hinkley.

So it was with a huge collective sigh of relief that the nuclear industry worldwide greeted the news that after months of will-it-or-won’t-it debate, Hinkley has been given approval by the European Commission.

The project had been in limbo for months while state aid investigators in Brussels decided whether UK government support for the project was in breach of competition regulations.

The EC gave the project the go-ahead in early October after asking the British government to alter the terms of the project financing.

Commission vice-president Joaquín Almunia, in charge of competition policy, said: “After the Commission’s intervention, the UK measures in favour of Hinkley Point have been significantly modified, limiting any distortions of competition in the single market.

“These modifications will also achieve significant savings for UK taxpayers. On this basis and after a thorough investigation, the Commission can now conclude that the support is compatible with EU state aid rules.”

The ‘modifications’ involved the EC asking – or telling – the UK to raise the amount of the state guarantee, the sum of which would cover any debt which EDF will seek on financial markets to fund the plant’s construction.

The Commission said that the initial guarantee fee which the operator would have paid to the UK Treasury was “too low for a project with this risk profile”.

The plant will require debt financing of £17 billion (around $27 billion) and will eventually have a capital cost of £34 billion, with construction costs estimated at £24.5 billion.

It will be built alongside the existing Hinkley A and B reactors in Somerset, southwest England, and it will be the fourth reactor in the world to run on EPR pressurized water reactor technology – the others are currently being built in France, Finland and China.

After delivering the Commission’s approval for Hinkley, Almunia said that the decision “will not set any precedents” for future nuclear projects. He stressed that the go-ahead did not mean that Brussels was favourable to nuclear at the expense of renewables, which it has long backed. “The choice to promote nuclear is a choice by the UK. There is no change of energy policy in the EU.”

Almunia stressed that he had assessed – and was comfortable with – the safety risks associated with nuclear. “I can assure you that I care about the risks involved in this kind of energy. I have paid attention to all the risks in this project.”

The chairman of the UK’s Nuclear Industry Association, Lord Hutton of Furness, said that once EDF undertakes its final investment decision, “this will set in train an important time for the nuclear sector in the UK as newbuild projects get underway to replace the current aging generation”.

“It also gives certainty to other European countries looking at the UK system of contracts for difference as a mechanism to secure their own supply.”

Mark Stewart, partner at UK infrastructure consultancy EC Harris, says the EC announcement is “a major boost to the UK nuclear industry and a step towards security of supply”.

“This will be the key that unlocks the UK nuclear industry and the wider watching European newbuild arena,” he adds.

He said it would bring “more jobs, more secure energy and a long-term replacement for aging energy assets”.

John Cridland, director general of the Confederation of British Industry, said the European Commission’s green light for Hinkley “is a significant milestone in the United Kingdom’s energy future. Hinkley should set the ball rolling for the UK’s nuclear newbuild programme.”

He is also keen that British businesses play a pivotal role in the construction of Hinkley and subsequent plants. EDF’s Paul Spence says that the company is aiming to use UK firms for 57 per cent of the construction value of Hinkley. He adds: “Hinkley Point will help to build skills that will be transferable to the other UK projects and projects elsewhere in the world. We want Hinkley Point to be a catalyst for UK firms to win global contracts once they have a seat at the nuclear table.”

Domino effect

As soon as EDF confirms its final investment decision and breaks ground at the site in Somerset, it will set off a domino effect for other newbuild projects in the UK.

That first shovelful of earth will signal that the UK government’s new electricity regime – and in particular its contract-for-difference payment measures – work for energy companies and their investors.

And there is consensus in both government and the industry that whatever the outcome of next May’s general election in Britain, there will be no attempt to derail the UK’s nuclear ambitions, which were after all started by a Labour government and have been pushed through by a Conservative-Liberal Democrat coalition.

Tim Yeo, chairman of the government’s Energy and Climate Change Select Committee, says: “Nuclear power needs cross-party support. It would be extremely unhelpful if any aspect of nuclear power became a political football.”

The government has earmarked eight nuclear newbuild sites in England and Wales. Five – Hinkley Point, Sizewell, Oldbury, Wylfa and Sellafield – have been acquired for development, and three – Bradwell, Heysham and Hartlepool – remain nominated sites.

Three companies plan to build at the five acquitted sites: EDF at Hinkley and Sizewell; Horizon, owned by Hitachi, at Oldbury in England and Wylfa on the island of Anglesey in Wales; and NuGeneration, a joint venture between Toshiba and GDF Suez, at Moorside in Sellafield in Cumbria, England.

The three companies will utilize third-generation reactor technology: EDF will use Areva’s European Pressurized Reactor; Horizon would employ Hitachi-GE’s Advanced Boiing Water Reactor, while NuGen will utilize Westinghouse’s AP1000 pressurized water reactor.

For Areva, Hinkley presents a fresh chance to deliver a newbuild project without (too many) hitches and glitches after EDF’s other European sites utilizing the EPR – Flammanville in France and Olkiluoto, in Finland – have been dogged by delays.

Work started on Flammanville in 2007 and was due to be completed by 2013. This date was later revised to 2016 and last month it was again put back by another year.

EDF said the delay was because of “difficulties encountered” by Areva in the delivery of certain pieces of equipment and the “implementation of the regulation on equipment under nuclear pressure.”

In the week that the latest delay was announced, Areva UK chief executive Robert Davies said that Hinkley Point “must and will benefit from the experience of other projects”.

“Hinkley Point has to built to time and cost – and Sizewell B is going to have to be cheaper.”

The China syndrome

China’s interest in Hinkley has caused both optimism and concern. Optimism that a country that is almost certain to produce the fourth generation of reactors is interested in entering a European market, and concern that, well… a country that is almost certain to produce the fourth generation of reactors is interested in entering a European market.

Areva’s Robert Davies says: “China will bring experience and they will bring valuable lessons. But they will need our companies to help them operate in the UK.”

Tim Yeo says: “The Chinese would like to deploy their technology in the UK and I welcome their interest.” And he adds: “I don’t think the government would link investment here with Hinkley with any future commitment to use Chinese technology in the future.”

However Yeo – who believes that “Germany’s decision to turn its back on nuclear power is neither helpful nor rational” – adds that we should be mindful of the possibility that Chinese technology could scale up faster than other technologies, which could be beneficial for the UK.

Just how many different reactor technologies end up in play across the UK is also causing some concern.

Sandy Rupprecht, chief executive of NuGeneration, says that by the time the company breaks ground on Moorside – which is expected to be operational by 2026 – there will be 16 other AP1000 reactors operational around the world: “So we will have a wealth of experience to draw on by then.”

But on the introduction to the UK of more reactor designs, he warns that “there is a law of diminishing returns” involved and said he would be concerned if further designs were introduced.

Mark Foy, director of the Civil Nuclear Reactor Programme at the Office for Nuclear Regulation, says: “There will be a limit for the number of technologies. We need to avoid what we have done in the past, that is, that every reactor is different.”

Areva’s Davies says that having several designs across different sites “gives us a competitive, first-class market. How many new designs – we will see.”

And EDF’s Spence says: “At some stage we will get to the point that we will say, ‘Let’s replicate the designs that we have got’.”

Development of the UK’s newbuild programme comes at a time when much of the rest of world has pressed the pause button on nuclear development.

Investment anaylst Moody’s has released a report on nuclear power and its conclusions are fairly bleak. “Despite government support for nuclear generation in most major economies, low prices for natural gas have put nuclear power in a less competitive position,” says Micheal G Haggarty, a Moody’s associate managing director and co-author of the report.

“As a result, nuclear generation is growing only in a few major markets, notably China and South Korea.”

The report examines Hinkley and concludes: “For EDF, whose UK nuclear fleet contributed just over 11 per cent of group EBITDA in 2013, any gap between the closing of existing plants and the commissioning of Hinkley Point C will present challenges, because earnings will decline at the same time net debt is increasing.”

“For the other utilities in the UK, nuclear power in the fleet is credit negative because it directly reduces the operating hours of their fossil fuel-based generation. Therefore, if further life extensions are granted to the existing fleet, power prices would be lower than they otherwise would have been.

“Conversely, if there were delays in the construction of Hinkley Point C, this could result in higher power prices than otherwise would have been the case as a result of a tighter reserve margin.”

What is certain is that the world is watching the progress of Britain’s nuclear programme.

Jay Brister, vice-president of business development at URS, said that the UK will have the largest concentration of nuclear newbuild in the western hemisphere in the next decade.

As John McNamara, head of corporate communications at NuGen, told an event last month organized by the International Atomic Energy Agency: “The world is watching how the UK approaches a programme of new nuclear build.

“Developers in the UK have a great responsibility to our communities, and our stakeholders – but also to the wider global nuclear industry.”

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