The reported costs of the proposed Hinkley Point C nuclear power plant rose from an expensive £10bn in 2012 to an eye-watering £16bn within the space of a year. Why so much?
During a 21 October investor conference call, the CEO of the French state-owned utility EDF, Henri Proglio, estimated the construction cost of the 3260 MW, twin EPR reactor project at £14bn, “in line with the amounts committed to the EPR at Flamanville,” i.e. £7bn each. EDF estimates a further £2bn will be necessary due to the specifics of the UK regulatory regime and site specifics of Hinkley Point C. The total estimated project cost, therefore, is £16bn.
Thomas Piquemal, EDF’s group finance senior vice-president, confirmed the additional £2bn did not include construction costs. “The investment cost is estimated to be £16bn, consisting of £14bn of construction costs and £2bn of other costs such as the acquisition of the sites, preparatory work for the various regulatory authorizations and the training of the 900 future employees of the nuclear station,” he said.
Later in the conference call, Proglio spoke of a “series effect”, i.e. a reduction in construction costs arising from experience learned the hard way from the long delayed and over-budget Flamanville 3 EPR project in Normandy, initially estimated to cost €3.3bn (£2.7bn).
Proglio said: “There is a series effect since we took lessons from our experience in Flamanville 3 and in Taishan [China] and compared to the cost of Flamanville 3 we are able to reduce significantly the cost of an EPR if we were to build a new Flamanville 3.” Proglio went further, saying, “If we had to build a new Flamanville 3 it would cost £2bn less”.
That would put the cost of a new EPR reactor in France at £5bn, rather than £7bn for Flamanville 3, and suggests the overall construction cost of Hinkley Point C could be £12bn (£10bn for two EPRs + £2bn for “specificities”) rather than £16bn.
Yet the construction cost of EPRs at Hinkley Point C remains at £7bn each, exactly the same as the delayed, hugely over-budget Flamanville 3.
Pressed on this by a curious journalist from French newspaper Les Echos, who was clearly wondering how the “series effect” seemed to have no effect on the construction cost of EPRs built across la Manche, Proglio gave this contradictory response: “The lessons learned…are offset by the site specificities for Hinkley Point, the regulatory environment in the UK and all specificities for HPC. The significant decrease offsets the additional incremental work that we have to perform and to carry out at Hinkley Point.”
But didn’t Monsieur Piquemal say that site specificities were accounted for by the £2bn on top of the £14bn construction costs? Confused? Proglio tried to explain. “We have to have many ancillary buildings at Hinkley Point C that we don’t need for Flamanville. The site has a geologically different nature, softer ground and we have to do more earthworks and to put more concrete underground as a consequence.
“We have to take into account the fact that the Severn estuary is the large tidal flow location and there are many issues of that nature which leads to a more expensive cooling system when you are going to get the water in the sea to cool the power station.” Although EDF says a new EPR in France would now cost £5bn, in Britain it is, in effect, £8bn. As Hinkley Point C is a twin reactor project, the difference between a ‘new’ twin-reactor Flamanville 3 and Hinkley Point C would be effectively £6bn.
Even allowing for the additional regulatory/site specifics plus land, training costs etc., does it really cost £6bn more to build two reactors of the same design in Britain than in France? Evidently so. This matters because the British government wants consumers to pay for Hinkley Point C via an index-linked feed-in tariff at £92.50/MWh for 35 years (which during the conference call even EDF Energy CEO Vincent de Rivaz calls a “high price”).
This, remember, is for a 3260 MW power plant that EDF expects will have an availability factor of 91%. In his ‘flabbergasted’ note published on 30 October, utility analyst Peter Atherton of Liberum Capital estimated that Hinkley Point C would earn EDF and its investment partners up to £80bn over the 35-year lifetime of the deal. If EDF had overpriced Hinkley Point C by 25% it could cost British bill-payers up to £20bn in additional subsidies.
Proglio concluded the British government had examined the figures and were satisfied with the £14bn+£2bn cost, whichever way it had been calculated. “[This is] fully understood by the government because all those costs have been scrutinized, analyzed, challenged by government, by the consultants and they have been convinced that these costs are justified and they are in the strike price,” he said.
The full transcript is well worth a read. It contains information about the nature of the Hinkley contract, especially its financing, which is not disclosed in either the 21 October DECC press release or EDF press release. This includes EDF Energy CEO Vincent de Rivaz saying decommissioning costs had been factored into the strike price at between “£2-2.50/MWh with a cap at £3/MWh and any difference will be passed through to consumers”.
De Rivaz also states the Hinkley Point C contract would contain “protection mechanism against adverse changes in expected operating costs such as uranium price or labour cost, and changes in other costs which are out of NNB controls such as transmission charges and business rates.”