On a wind-swept stretch of the Somerset coast almost 3,000 people are hard at work on one of the most ambitious construction projects ever undertaken in the UK. Once complete, Hinkley Point C will be the largest power station anywhere in the country, with its two 1.6GW European Pressurised Reactors (EPRs) providing enough power for around 6 million homes.
Since their efforts began almost 18 months ago, trucks and diggers have moved more than four million cubic metres of earth – two and half times the volume of Cardiff’s Millennium Stadium on the opposite side of the Bristol Channel. The sprawling construction site, not long ago a verdant field next to the old Hinkley Point A and B nuclear plants, is now a sea of mud and concrete, stretching to the horizon in almost every direction.
The network of underground tunnels, known as galleries, which will carry wires and pipes around the power plant, is now well under way, as is the jetty which will be used to ship vast quantities of building materials directly to the site. Temporary accommodation to help house the 5,000-strong workforce which will soon be required is nearing completion.
EDF Energy is aiming to commission the project in 2025 – almost eight years after former chief executive Vincent de Rivaz infamously claimed British households would be cooking their Christmas turkeys using power from Hinkley.
In a speech at its nearby training centre in Cannington, attended by Utility Week, his replacement Simone Rossi, explains that the main focus on site is meeting the next major milestone in June 2019 – “J-zero” – when construction will start on the above ground structures of the power station itself.
As the first new nuclear plant to be built in Britain for a generation and the poster child for a touted nuclear renaissance, Hinkley has been bombarded with criticism, chiefly over cost. With offshore wind coming in at just £57.50/MWh in the latest Contracts for Difference auction, pressure is on the nuclear sector to offer a more competitive strike price than the £92.50/MWh deal secured by Hinkley.
“We understand the message from the government on cost reduction and the need to be competitive for the next nuclear projects,” says Rossi. “It is our job to meet the challenge and I think we can.”
Hinkley is currently projected to cost £19.6 billion to build, or £20.3 billion if completion is delayed until 2027, as parent company EDF has suggested could happen. But Rossi believes this cost be lowered by as much as a fifth for the follow-on project at Sizewell C in Suffolk.
He hopes to achieve this by copying much of the design for Hinkley. “The key to reducing the construction cost is replication,” he explains. “Doing something again with the same design makes it easier and cheaper.”
Rossi highlights the example of the eight emergency generators which will eventually be installed at Hinkley: “They had to be designed and certified to meet the standards required for nuclear safety. That means the first two will cost £38 million, but the next six will be half the price – £19 million each.
“At Sizewell, none of that development or certification work needs to be done again. All its emergency generators will be at the lower price. Repeating that experience countless times for a power station at Sizewell that is largely identical to Hinkley Point C makes a capital cost reduction of 20 per cent possible.”
He says the construction costs could also be lowered by reusing the existing grid connection at Sizewell, which was built to handle a much bigger plant than is currently there: “Sizewell C can benefit from that big advantage with substantial savings in grid connection costs.”
Cost to consumers
Rossi says an even bigger saving could be made by lowering the cost of capital using innovative financing models – ones where investors don’t bear all of the construction risks as is the case for Hinkley.
This would allow EDF to bring in capital from institutional investors, such as pensions funds, which would otherwise consider the project too risky.
He notes a recent report from the National Audit Office which chastised the government for failing to explore such options for Hinkley. The report argued that the overall cost to consumers could have been reduced if the government had taken on some of the construction risks.
Speaking separately to reporters, Rossi claims initial scouting has uncovered a “strong appetite” among institutional investors to put their money in projects like Sizewell: “Clearly these assets, once they are built and running, really fit very well with the investment strategies and the profiles of some of these players.”
Perhaps alluding the London super sewer, he says there are other examples of large infrastructure projects – “we are talking about projects that are in the billions” – that have been funded along similar lines.
Among the companies to invest in the Thames Tideway Tunnel is Dalmore Capital. Co-founder Alistair Ray has since confirmed it is in early talks with EDF Energy about investing in Sizewell. “The problem to date is that there is too much risk in these projects,” Ray told the Telegraph. “If the project financing can be structured in a way which offers a fair return for the risk involved there is plenty of pension fund and insurance fund money looking to get into assets like this.”
Rossi says this wouldn’t have been possible with Hinkley: “If we were trying to do this on a completely new technology project, maybe we would be trying to do too many things at the same time.”
There are four EPRs nearing completion around the world – one in France, one in Finland and two in China – but none are yet operational.
Despite all being beset by long delays, Rossi claims by the time an investment decision is made for Sizewell the reactor will be a “proven technology”, offering a safer bet for investors. “The fundamentals of the project are good,” he adds, “so this should make the project a good candidate to do this innovation on the financial framework”.
Without outside financing, EDF will struggle to pay for Sizewell by itself. Hinkley has already placed a huge strain on the company’s balance sheet. In March last year, it was compelled to sell £4 billion of new shares to finance the construction of Hinkley – mainly to its biggest shareholder, the French government.
Rossi says it is “too early to tell” how much private financing EDF will seek for Sizewell. But if it is successful in drawing in institutional investors, he claims the project will be competitive will the “equivalent alternatives”.
By this, he means something which is low-carbon and has “the same availability profile”. He warns that, although the UK has a “beautiful resource”, wind power has its limits and cannot provide the firm generation that nuclear can.
Implicitly confirming reports that EDF believes Sizewell C can be delivered for a strike price of £70/MWh, Rossi says the company currently estimates the system integration costs for wind at between £10 and £15/MWh. He says this figure is projected to rise significantly as renewable penetration increases and curtailment payments, for example, swell.
“We should harvest it,” he adds. “But at some point, if you harvest too much of it you end up in a place where it’s hurting you rather than being a benefit and there’s a good mix that is what the country needs.”
Rossi says these rising integration costs and reduced price tag for Sizewell will enable nuclear to be competitive with renewables “not just now, but in the future”.
If it is not, he admits, “there will be no project”.