Project Costs and Timeline

The Hinkley Point C project successfully delivered J-0 milestone in June 2019, the completion of the nuclear island “common raft” for its first unit, in line with the schedule announced in September 2016.

Following this major milestone, a detailed review of the project’s costs, schedule and organisation was performed. The review has concluded that⁽¹⁾ :

• the next milestone of completing the common raft for Unit 2 in June 2020, which was announced earlier in 2019, is confirmed;
• the previously communicated risk of COD delay of units 1 and 2
  (of 15 months and 9 months respectively) has increased⁽²⁾ ;
• the project completion cost is now estimated between £201521.5bn and £201522.5bn⁽³⁾, an increase of £20151.9bn to £20152.9bn⁽⁴⁾ compared to the previous estimate. The range depends on the effectiveness of action plans to be delivered in partnership with contractors.
  
  

The additional costs are mainly the result of difficult soil conditions, which made the earthworks more expensive than expected, the revision of the objectives of the operational action plans, and the additional costs related to the implementation of the functional design of a “first of a kind” plant adapted to the British regulatory context.

EDF’s project rate of return for Hinkley Point C (IRR) is now estimated between 7.6% and
7.8% ⁽⁵⁾.

The management of the project remains mobilised to begin generating power from Unit 1 at the end of 2025. To achieve this, operational action plans overseen by the management team of the project are being put in place. These involve the EDF group’s engineering teams in the UK and France, buildings and ancillary works contractors, and suppliers of equipment and systems throughout the supply chain.

The agreements between EDF and CGN include a capped compensation mechanism between both shareholders in case of cost overruns or delays. The additional costs announced in September 2019 will trigger the activation of this clause when the time comes. These agreements are part of a Shareholders’ Bilateral agreement signed between EDF and CGN in September 2016 and are subject to a confidentiality clause(see section 2.2.4 “Operational Performance, risk factor 4A Management of large and complex industrial projects [including EPR]").

Progress of the project

At the end of 2019, the project confirmed the “J-0” target for unit 2 set form id-2020 and has achieved four goals set for 2019:

• tunnel boring machine launch;
• J-0, completion of the nuclear island common raft of unit 1;
• completion of engineering for Inner Containment Lift 1;
• start of manufacturing of unit 1 Pressurizer.
  
  

In addition, other major works have been delivered, in particular the signature of a commercial alliance on electro-mechanical work, manufacturing of steam generator parts and legs by Framatome, handover of the electrical substation platform to National Grid, first boats docked at the jetty and opening of a welding school.Moreover, the Liner cup, which is part of the reactor’s steel containment liner and weighs 170 tonnes, was lifted and successfully placed into the reactor building.

Progress on unit 2 Nuclear Island, Conventional Island and Pumping Station are 12 months after Unit 1, as planned.

At end 2019, the expenditure to date for the project as a whole stood at £9.4 billion (at nominal values), excluding interim interest, or £8.8 billion at real £2015 values.

Exchanges with the UK office for nuclear safety and regulation (ONR)

Discussions with the ONR are ongoing.

Next ONR Hold Point will be the start of bulk MEH erection. In addition, agreement from ONR will be needed for the dispatch of the first components coming from Framatome and for the delivery of fuel on site.

Contract for Difference (CfD)⁽⁶⁾ 

The HPC project company, NNB Generation company (HPC) Limited and the Department of Energy and Climate Change (DECC) have agreed, on October 2015, on the full terms of the CfD for HPC, which was approved by the European Commission in October 2014, ruling that the terms complied with EU state aid rules.The Commission’s decision has been challenged by Austria, and is currently on appeal before the Court of Justice of the European Union, the claim before theGeneral Court having been dismissed in a ruling on 12 July 2018.

The CfD was signed on 29 September 2016 alongside all the other contracts with the UK Government and it is a contract to provide security in respect of revenues generated from electricity produced and sold by HPC through compensation based on the difference between the Strike Price and the market price, for a period of 35 years from commissioning of Unit 2.

From the plant’s start date, if the reference price at which the generator sells electricity on the market is lower than the strike price set under the terms of the contract, the generator will receive an additional payment. If the reference price is higher than the strike price, the generator will be liable for the difference.

The key elements of the CfD are:

• the strike price for HPC is set at £201292.50/MWh; strike price will be reduced to£201289.50/MWh if the Sizewell C project is launched (i.e. if a final investment decision is taken), with further compensation from Sizewell C to HPC, in order to share first of a kind costs of EPR across both projects;
• the strike price is fully indexed to UK inflation through the Consumer Price Index(CPI);
• the payment term is 35 years; any delay in the commercial commissioning of unit1 exceeding 4 years after the deadline specified by the agreement for unit 2 (i.e.beyond 31 October 2033, unless this date is postponed pursuant to the terms of the agreement) authorises (but does not oblige) the government to terminate the agreement. Moreover, in the event of any delay to unit 1 or unit 2 resulting in the unit in question starting up after the commercial commissioning deadline, the corresponding 35-year payment term would be decreased commensurately with the deadline overrun.Regarding the risks identified in the deferral of delivery (15 months for Unit 1 and 9 months for Unit 2), these are within the deadlines set out in the signed contract;
• the project is protected against certain un favourable regulatory and legislative changes; provision has also been made to review the costs (up or down depending on the assumptions used) in the fifteenth and twenty fifth years, and to review certain conditions for the costs corresponding to decommissioning and waste management operations (Funding Decommissioning Programme);
• should there be savings from the construction of the HPC project, these will be shared with consumers through a lower electricity price.
  
  

There is no explicit volume guarantee in the CfD, nor is there a ceiling; however, the contract is protected against the risk of erasure in case of changes to regulations orto the market.

(1) Please refer to the Press release of 25 September 2019 “Update on Hinkley Point C project”.
(2) As previously communicated in July 2017, if this risk were to materialise, it would entail an additional cost of around £0.7bn in 2015 sterling. Under this assumption the IRRfor EDF would be lower by 0.3% (refer to the Press release of 3 July 2017 “Clarifications on Hinkley Point C project”).
(3) In 2015 sterling, excluding interim interest and excluding forex effect versus the reference exchange rate for the project of 1 sterling = 1.23 euro.
(4) Additional costs net of action plans.
(5) EDF equity IRR calculated at the exchange rate 1 sterling = 1.15 euro and including the capped compensation mechanism in place between shareholders.
(6) Terms of the contract are available on the UK government website: https://www.gov.uk/government/publications/hinkley-point-c-documents.