8 Oct 14

Agreements for planned Hinkley Point C nuclear power station approved by the European Commission

The agreement for Hinkley Point C   The Commission found that the long-term contract (Contract for Difference[i]) and the guarantee constitute an appropriate and proportionate way for the UK to meet its need for secure, low carbon energy. The Commission’s decision leaves the key elements of last October’s agreements unchanged whilst it has reinforced measures designed to share potential future benefits with customers.
  • The “strike price” for Hinkley Point C remains set at £92.50/MWh or £89.50/MWh if the planned power station at Sizewell goes ahead [ii]
  • The contract will last for 35 years
  • The strike price is fully indexed to inflation through the Consumer Price Index
  • The project will be protected from certain changes in law

As proposed in October 2013, the Contract for Difference already contained a series of “gainshare” mechanisms in which customers would benefit if the project construction costs or equity returns were more favourable than forecast. The Commission, the UK Government and EDF have accepted reinforcement of the “gainshare mechanisms” in the package today approved by the Commission.   EDF Energy has also committed that electricity from the proposed power station will be sold at market price and recorded separately from EDF Energy’s other electricity production.    EDF has agreed that the fee for the Government’s proposed Guarantee of project debt be paid at commercial rates.[iii] The agreed guarantee fee delivers the equity return required by investors.    Costs In October, 2013 EDF said that the construction costs for the two nuclear power units at Hinkley Point, expressed in 2012 money, are expected to be £14bn. In addition to the construction costs, the project and its partners will have incurred £2bn of other costs before first operation. These include land purchases, achieving the different consents, construction of a spent fuel storage facility and preparing the 900 strong team which will run the station. This means total costs to first operation are expected to be close to £16bn, expressed in 2012 money. These figures have not changed.   Next steps Approval by the European Commission is another important milestone for the HPC project following the granting of planning permission by the Secretary of State, nuclear site licences and the approval of the EPR reactor design by the UK nuclear regulator, and agreement between EDF and the UK Government on key commercial terms in October, 2013.   The remaining steps require the conclusion of agreements with strategic and financial partners. In parallel the waste transfer contract arrangements must be approved by the European Commission and by the Secretary of State as part of the Funded Decommissioning Programme.[iv] Subject to a final investment decision, the power station is expected to complete commissioning of the first unit in 2023.   Project status Since March this year, the project team has moved forward with pre-development work at its own risk to prepare the construction site. This includes building of haul roads to give access to the site for machinery needed for the main construction phase, road improvements on the approach to the site and the first stages of office buildings, worker accommodation and welfare facilities.   Training has begun at the Bridgwater College Construction Skills Centre, giving local people the skills they need to work on the project. EDF Energy has also reached agreement with contractors and unions on conditions and employee relations covering all workers on the site. In parallel with the on-site work, off-site work has continued on the detailed engineering design for the power station. Work has also continued with major construction partners to ensure an efficient work schedule.   EDF chairman and CEO Henri Proglio said: "The approval by the European Commission is a major milestone for the Hinkley Point C project. Now EDF and partners have to finalise the agreements needed to reach a final investment decision. Building EPR reactors in the UK will provide huge benefits for both countries in terms of job opportunities, economic growth and skills, further strengthening France and United Kingdom fruitful partnership.”   EDF Energy Chief Executive Vincent de Rivaz said: “The approval of the European Commission demonstrates that the proposed package of agreements between the Government and EDF is fair and balanced for investors and consumers now and for the long term.   “The Commission rigorously examined the costs of the project in detail, potential returns for investors and benefits for customers. The engagement with Brussels was thorough, demanding but constructive."   Hinkley Point C will be able to supply approximately seven per cent of the UK’s electricity needs, with secure, reliable low carbon electricity for decades to come. It will also provide a massive boost to jobs, skills and industrial capability in the UK. An estimated 25,000 workers will be involved in the project during construction with a peak of over 5,600 workers on site at one time. During its 60 years of operation it will avoid around 9m tonnes of CO2 emissions per year and will employ around 900 people.   [i] Agreements for Hinkley Point C include a “Contract for Difference” (CfD). This means that if wholesale prices rise above an agreed “strike price”, payments from the generator will go back to consumers. If they fall below this price, the generator will receive a top-up payment. Customers pay nothing until the power station is operational.   [ii] If Sizewell C goes ahead, there will be a payment from Sizewell C to Hinkley Point C equivalent to £3/MWh upon the final investment decision being taken with respect to Sizewell C reflecting the fact that the first-of-a-kind costs of EPR reactors are shared across the Hinkley Point C and Sizewell C sites. The strike price will be £92.50/MWh for HPC project if Sizewell C does not go ahead. These figures are in 2012 prices.    [iii] The proposed Infrastructure Guarantee would be used to support 65% of total budgeted costs prior to operation. EU rules require that the costs of the Infrastructure Guarantee provided by the Government will be paid for at a commercial rate.   [iv] This means that, for the first time, the eventual decommissioning and waste management costs associated with Hinkley Point C will be paid by the generator at the time of generation. The cost of this Funded Decommissioning Programme is already taken into account in the strike price.  

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Notes to editors

The European Commission has approved the agreements between EDF Group and the UK Government to build a new nuclear power station at Hinkley Point C in Somerset. Its decision followed a rigorous and detailed examination of the deal during a 12 month investigation by the European Commission.

The proposed agreements are for a long-term contract for the electricity generated at Hinkley Point C and for a guarantee for the project’s debt.

EDF Energy

EDF Energy is one of the UK’s largest energy companies and the largest producer of low-carbon electricity, producing around one-fifth of the nation's electricity from its nuclear power stations, wind farms, coal and gas power stations and combined heat and power plants. The company supplies gas and electricity to 6 million business and residential customer accounts and is the biggest supplier of electricity by volume in Great Britain.

EDF Energy’s safe and secure operation of its eight existing nuclear power stations at sites across the country makes it the UK’s largest generator of low carbon electricity. EDF Energy is also leading the UK's nuclear renaissance and has published plans to build four new nuclear plants, subject to the right investment framework.

These new plants could generate enough low carbon electricity for about 40% of Britain’s homes. They would make an important contribution to the UK’s future needs for clean, secure and affordable energy. The project is already creating business and job opportunities for British companies and workers.

Through Our Better Energy Ambitions, EDF Energy has developed one of the biggest environmental and social programmes of any British energy company.

In 2014 EDF Energy received seven ‘Big Ticks’ in the Business in the Community (BITC) Responsible Business Awards. In 2013 EDF Energy received the Environmental Leadership for Behavioural Change Award in the national Environment and Energy Awards and was highly commended in the first ever pan European Corporate Social Responsibility Awards scheme for its Sustainable Schools programme – the Pod.

EDF Energy is part of EDF Group, one of Europe’s largest power companies. The company employs around 14,000 people at locations across the UK.

To find out more about the UK's energy challenges look at www.edfenergy.com/energyfuture/