The European Commission’s decision to approve the UK government’s subsidy for Hinkley Point C “pulls the lever” that will allow the estimated £24.5bn project to move forward next year, EC Harris predicts, although a further legal challenge and financing hurdles could still cast “leaves on the line”.
Mark Stewart, partner for energy at EC Harris, believes that a possible legal challenge from the Austrian government over the legality of the UK’s state-aid package is unlikely to seriously derail the project, saying: “The train’s got out of the station and is moving forward – although there will be further obstacles and it will cost more than the predicted tender cost.”
“It’s very positive it’s got through, and opens the door for other nuclear new build opportunities, it means there is support for nuclear. It’s a message for the supply chain to start gearing up, but it could be a nail in the coffin for other technologies in the energy sector.”
EDF says the cost will be £16bn at 2012 prices, including £2bn for land purchases, staff training and a spent fuel facility, while the higher £24.5bn figure quoted by the European Commission rolls up interest costs for debt finance over the build period.
But Stewart bases his forecast of capital cost rises on the experience two new-build power plants using similar European Pressurised Reactor technology: Flamanville 3 in France is also being built by EDF, and Olkiluto 3 in Finland is headed by Areva.
According to Wikipedia, initial capital cost estimates for the two EPR plants were €3.7bn and €3.3bn respectively, while the latest reported costs are €8.6bn and €8.5bn. Both projects are substantially delayed and neither is operational.
Stewart told CM: “We have a history on EPR, in Flamanville and Finland the costs roughly doubled. EDF would say that the supply chain in Finalnd is not as advanced or mature as in the UK, but it’s still being built in a market that’s constrained and with other competing projects. If you use the other two EPR projects as a benchmark, the tender bid costing will be far exceeded.” He suggested that the build costs could rise over the nine year programme by at least 35-40%.
Mark Stewart, partner for energy at EC Harris
The build cost per megawatt at Hinkley is already high in relation to other sources of electricity generation, he pointed out, but the overall cost comparison with gas-fired power stations, wind power and biomass plants look more favourable averaged out over project lifecycles.
Hinkley Point C will have two 1,650MW reactors, giving a cost of roughly £5m per megawatt, based on the £16bn figure. In comparison, Stewart said that a gas-fired power station could be built for £1.5m per megawatt, offshore wind is priced at £4m per megawatt, onshore wind at £2.5m, and biomass plants at £3m.
But an EPR facility has an expected lifespan of 60 years (compared to 40 years for first generation nuclear plants). “The capital cost will be more, but over the whole lifecyle it will level out. For instance, offshore wind farms are estimated to have a lifespan on 20 years – after that time the operators are planning to lift the turbines out of the water and replace them.”
Overall, Stewart believes that the EC announcement was extremely positive news for the construction sector, but possibly undermined the viability of other forms of renewable energy.
“It’s very positive it’s got through, and opens the door for other nuclear new build oportunities, it means there is support for nuclear. It’s a message for the supply chain to start gearing up, but it could be a nail in the coffin for other technologies in the energy sector.
“Also other EU countries have been watching the UK in terms of how they deal with the economics of delivering thses assets, so this opens the door for any of them to start moving their processes forward.”
The green light from the EC mean that French energy company and 50% investor EDF can now progress talks with its finance partners – Areva will take 10%, and the China General Nuclear Corporation (CGN) and China National Nuclear Corporation (CNN) are expected to take a 40% equity share in the project finance package.
Stewart also expects EDF to move forward with mobilising its supply chain, irrespective of the possible legal challenge. BYLOR, a joint venture between Bouygues and Laing O’Rourke, is already on site with the main £2bn civils build contract; Bam Nuttall and Kier have a £100m earthworks contract; Balfour Beatty Civil Engineering is building a £30m temporary 500m jetty for construction materials, and Costain has £250m contract for three tunnels to channel seawater in and out of the plant.
But French firms are set to supply the reactor equipment: Areva will build the two 1,650MW European Pressurised Reactors (EPRs) along with the instrumentation and control system, while Alstom will provide the turbines. Stewart says that it’s also possible that Chinese firms could join the supply chain, if CGN and CNN make this a negotiating point.
