The UK Government and 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.
This paves the way for the construction of the first new nuclear power station in the UK in a generation. It will provide a stable source of clean power from 2023, generating enough electricity to power nearly 6 million homes or an area twice the size of London.
Hinkley Point C (HPC) will be the first new nuclear power station to be built since Sizewell B, which started generating electricity in 1995. It will begin the process of replacing the existing fleet of nuclear stations, most of which are due to close in the 2020s. Once built, it will provide a clean source of home-grown energy, helping to keep the lights on, cut emissions and reduce consumer bills over the long-term.
EDF Group and other investors will be responsible for funding this project. Consumers will pay for the electricity it generates from 2023 through their bills. 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.
The Government will ensure that the operator of Hinkley Point C will be responsible for the full costs of decommissioning and its share of the costs of waste management.
Building HPC will have significant benefits for the UK economy, including:
A massive investment by EDF Group and its fellow investors of around £16 billion to build the plant. UK companies could benefit from getting up to 57% of the work;
25,000 jobs created during construction, with 5,600 people employed on site at peak of construction, and 900 permanent jobs over 60 years of expected operation;
Power provided for nearly 6 million homes, an area almost twice the size of London, with the site meeting around 7% of the UK’s electricity demand when running at full capacity; and
A clean, home-grown source of electricity, which will reduce the UK’s emissions by 9 million tonnes of CO2 per year, helping to meet climate targets.
Prime Minister David Cameron said:
“Earlier this month I spoke about our new industrial policy that looks to the future, and about our determination to embrace new technologies and back new industries and energy sources so that they can flourish and help us build a rebalanced economy across the country.
“As part of our plan to help Britain succeed, after months of negotiation, today we have a deal for the first nuclear power station in a generation to be built in 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 as a whole. 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.
“This also marks the next generation of nuclear power in Britain, which has an important part to play in contributing to our future energy needs and our longer term security of supply”.
Energy and Climate Change Secretary Edward Davey said:
“This is an excellent deal for Britain and British consumers.
For the first time, a nuclear power station in this country will be built without money from the British taxpayer. It will increase energy security and resilience from a safe, reliable, home-grown source of electricity.
“This deal is competitive with other large-scale clean energy and with gas – and while consumers won’t pay anything up front, they’ll share directly in any gains made from the project coming in under budget and from refinancing or equity sales in particular circumstances.
We are creating one of the most attractive electricity investment markets in the world – and this is a clear sign that investors are already responding, even before our electricity market reforms become law.”
Henri Proglio, Chairman and CEO of EDF Group, said:
“The agreement in principle reached today with the British government significantly strengthens the industrial and energy co-operation between France and the United Kingdom. The EPR project at Hinkley Point represents a great opportunity for the French nuclear industry in a context of a renewal of competencies.
“This project will deliver a boost to the economy and create job opportunities on both sides of the channel and will enable the United Kingdom, a country in which EDF is already the leading producer of electricity, to increase the share of carbon-free energy in its production mix.”
The key terms include a “Strike Price” of £89.50 /MWh fully indexed to the Consumer Price Index. This price benefits from an upfront reduction of £3/MWh built in on the assumption that the developer would be able to share the first of a kind costs of the EPR reactors across the HPC and Sizewell C sites. If the EDF Group does not take a final investment decision on Sizewell C, the Strike Price for HPC would be £92.50/MWh. The development of Sizewell C will be subject to relevant consent and regulatory and other approval procedures at the appropriate time.
The developer would separately be required to start putting money into a fund from the first day of generation to pay for decommissioning and waste management costs associated with HPC.
The EDF Group has also announced today the intent of two Chinese companies, CGN and CNNC, to invest in HPC as minority shareholders. This follows the signing last week by the Chancellor of a Memorandum of Understanding on civil nuclear energy cooperation between the UK and Chinese Governments.
The commercial agreement reached today on key terms is not legally binding, and is dependent on a positive decision from the European Commission in relation to State Aid.
An investment contract is an early Contract for Difference (CfD). CfDs are designed to provide the most efficient long-term support for all forms of low-carbon generation – including nuclear, renewables and Carbon Capture and Storage technology. They are being introduced through Government’s reforms to the electricity market which are designed to keep the lights on and reduce emissions at least cost to consumers.
The support provided for HPC under the proposed investment contract is consistent with the Government’s policy of not providing a public subsidy for new nuclear unless similar support is provided to other types of low-carbon generation. Similar support will be made available to other types of generation which are eligible for CfDs.
Notes to editors
All prices referred to in this press release, including these notes, are in 2012 prices.
1.The key terms on which commercial agreement has been reached are:
A “Strike Price” of £89.50/MWh fully indexed to the Consumer Price Index. This price benefits from an upfront reduction of £3/MWh built in on the assumption that EdF will be able to share the first of a kind costs of the EPR reactors across the Hinkley Point C and Sizewell C sites. If EdF does not take a final investment decision on Sizewell C, the Strike Price for Hinkley will be £92.50/MWh. The development of Sizewell C will be subject to relevant consent and regulatory and other approval procedures at the appropriate time.
A contract difference payment duration of 35 years, from the earlier of the point at which each reactor at Hinkley Point C becomes commercially operational and the last day of the target commissioning window for that reactor, subject to satisfaction of certain conditions.
Gain share arrangements where savings made on the construction of Hinkley Point C or on refinancing or equity sales that increase investors’ realised equity returns beyond a certain point would be shared.
Arrangements whereby the Strike Price would be adjusted downwards to reflect changes to the amount of tax payable by the project company in certain circumstances.
Arrangements whereby the Strike Price could be adjusted, upwards or downwards, in relation to operational and certain other costs (including balancing and transmission charges and business rates) at certain fixed points, and in relation to certain future changes in law (including in respect of specific nuclear taxes, and uranium and generation taxes).
Arrangements whereby Hinkley Point C would be protected from being curtailed without appropriate compensation, with reviews expected to occur at 7.5 years, 15 years and 25 years after the commercial operations date of the first reactor as well at the end of the contract term.
Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG cover or in certain circumstances where market cover in the nuclear insurance market is no longer available, with compensation limited to the cost of additional capital required to self-insure.
Compensation to the Hinkley Point C investors for their expected equity return would be payable in the event of a Government directed shut down of Hinkley Point C other than for reasons of health, safety, security, environmental, transport or safeguards concerns. The arrangements include the right to transfer to Government, and for Government to call for the transfer to it of, the project company which owns Hinkley Point C in the event of a shutdown covered by these provisions. The compensation arrangements would be supported by an agreement between the Secretary of State for DECC and the investors.
2.Investment contracts, such as that under discussion for Hinkley Point C, are an early form of Contract for Difference (which are envisaged to be introduced under the Electricity Market Reform (EMR)). Under investment contracts (and Contracts for Difference) if the Strike Price is above the reference price, the generator would receive the difference between the two. However, if the reference price is above the Strike Price, the generator would have to pay the difference to the counterparty.
3.As any investment contract would be provided in advance of EMR being fully operative, it is envisaged that EdF would be provided with a letter from the Secretary of State explaining how the payment mechanism is expected to operate with respect to the investment contract.
4.All the terms are subject to contract and, although not legally binding, are expected to establish the parameters for further negotiation on the proposed investment contract. Ultimately, an investment contract would only be offered to NNBG if the Government considers the contract to be value for money and in line with our policy of not giving support to new nuclear unless similar support is also made available more widely to other types of generation. Any investment contract would also be conditional on any required State Aid clearance being obtained, and Royal Assent of the Energy Bill and financial close. If agreed, the contract would be laid before Parliament in accordance with the Energy Bill.
5.HM Treasury announced on 27 June 2013 that Hinkley Point C had been pre-qualified for consideration for a UK Guarantee. EdF and HM Treasury are in discussions regarding the terms of a potential UK Guarantee. Any risks borne by HM Treasury by providing such a Guarantee would be paid for by NNBG and at commercial rates. The UK Guarantees Scheme is open to all eligible infrastructure projects, including those in the renewable energy sector.
6.Taken together, these terms would help ensure an appropriate allocation of risk, giving NNBG enough certainty to build the plant and helping to meet one of the Government’s key objectives of achieving decarbonisation of electricity supply at least cost.