HPC project is protected against power market price changes during the CfD period.
These risks are detailed in section 2.2.4 “Operating performance” – 4A –Management of large and complex industrial projects (including nuclear).
As with any project of this scope, and even though the CfD has a protective role, the project presents risks in terms of timing and budget overruns at the end of the project.
In terms of foreign exchange, it is important to note that c.1/3 of the project costs are denominated in Euro. This exposes both the project and EDF group to the GBP/EUR exchange rate.
Should sterling fall against the euro, the sterling cost of the project will go up and its IRR will therefore drop. A hedging strategy has been implemented in 2019 at project level to limit exposure of Euro spending to a potential sterling devaluation and capture gains in case of Sterling appreciation.
Nevertheless, at EDF group level, a Sterling devaluation will trigger a fall in euro funding requirements and therefore lower Group debt. Given the long-term investment horizon in the HPC project, EDF group is implementing a gradual strategy to cover the risk of an increase in sterling value for its HPC investment. Beyond the commissioning phase, the IRR of the euro investment is dependent on fluctuations in sterling and UK inflation (in relation to the July 2017 baseline), as revenue is generated in sterling and linked to inflation.
Contracts for the Funded Decommissioning Programme (FDP) were signed on 29 September 2016. There is a statutory requirement for nuclear operators to have a FDP, under which an independent Fund Company will collect contributions and manage the money built up to pay for decommissioning of the nuclear reactor at the end of the generation.
The Nuclear Decommissioning Fund Company (FundCo) was setup in compliance with the Energy Act 2008 as its purpose is to provide costs of decommissioning by implementing the FDP.
The overall objective of the FDP is to ensure that operators make prudent provision for:
EDF and CGN signed the Sizewell C Project equity documents on 29 September 2016 alongside the HPC contracts, for the development, building and operation of two EPR reactors (3.2GW).
During development phase previous to final investment decision, EDF’s share is of 80% and CGN of 20%. After the final investment decision, the project is not aimed to be controlled at EDF level. As a result, it should not be consolidated. The objective is for other investors and lenders to step in in due course and for EDF to become a minority shareholder with pari passu rights. Final investment decision is targeted around 2021 year end.
Project development is based on a replication strategy from HPC which should enable costs to be driven down thanks to a decrease in construction costs combined with lower risks. The Sizewell C project will also be based on EPR technology, and will benefit from feedback and experience from HPC.
Financing of the project is under discussion with the UK government. It would use the Regulated Asset Base (RAB) model, which caps investor exposure to the risk of cost overruns above a specified amount, subject to terms to be defined. This model would provide a lower cost of capital, corresponding to a lower level of risk. Investors would receive income right from the start of construction. The government launched a consultation process from July to October 2019 to seek views from stakeholders on the considered Regulated Asset Base (RAB) model for New Nuclear projects.Feedback is expected first half of 2020.
This financing model has never been implemented for projects of that scale before and therefore would be one of the largest ever equity issuance and project financing on the European scene. Securing the appropriate risk-sharing mechanism and ultimately the corresponding financing structure ahead of the Final Investment decision is therefore key for the project, the UK Government and the current shareholders. EDF’s ability to make a final investment decision on Sizewell C and to participate in the financing of this project beyond the development phase could depend on the operational control of the Hinkley Point C project, on the existence of an appropriate regulatory and financing framework, and on the availability of sufficient investors and financiers; such criteria are not met to date (see section 2.2.4 “Operational Performance”, risk factor 4A Management of large and complex industrial projects [including EPR]).
The cooperation between EDF and CGN encompasses the process to obtain the design certification of the Chinese-based design HPR1000 in the UK (UK HPR1000) by the Office of Nuclear Regulation and by the Environment Agency through the Generic Design Assessment (GDA) process. For that purpose, EDF and CGN have established a joint-venture, General Nuclear Systems Limited (GNS) (33.5% EDF –66.5% CGN). The GNS joint-venture Shareholders’ Agreement was signed on 29 September 2016.
The HPR1000 technology has been developed by CGN with a reference project under construction in China (FangChengGang 3-4).
The GDA is a 4 steps process, which started in January 2017, the first three steps have already been successfully achieved. Step 4 started in February 2020 and should be completed at the end of January 2022.
In parallel, EDF and CGN signed the Bradwell B Project Shareholders’ Agreement on 29 September 2016 which consists in the development of a nuclear generation facility at Bradwell-on-Sea using the UK HPR1000 technology. To date, with respect to the development phase, CGN has a 66.5% interest and EDF of 33.5% interest.
Italy is one of EDF’s four key markets in Europe alongside France, the UK and Belgium.
The Group is mainly present in Italy through its 97.446% shareholding in Edison(1),which is a major player in the Italian electricity and gas markets and a well-known Italian brand.
In line with Edison’s strategy goal of becoming a key player on the Italian renewable energy market against a backdrop of energy transition, in July 2019 Edison bought out from EDF EN Italia Spa (EDF EN Italia), a wholly-owned subsidiary of EDF Renewables, with a portfolio of 216 MW of wind farms and 77MW(2) of solar farms.Furthermore, in 2016 Fenice, a wholly-owned subsidiary of EDF, was affiliated with Edison to strengthen its strategic engagement in the energy services sector, with a fuller, more diversified offering. The two transactions simplified EDF’s business on the Italian market.
The EDF group is also present in Italy via Citelum.
Like the majority of European energy systems, the Italian market is currently facing a certain number of challenges. Thanks to its current position and integrated presence in the sustainable gas and electric power value chain, Edison is well-placed to seize opportunities created by market changes, while pursuing efficiency and profitability, in line with the CAP 2030 priorities and international and Italian energy policies.
During 2019, Edison focused on implementing its transformation strategy, designed to pursue its repositioning as a responsible leader in the context of energy transition.The company has focused on increasing renewable production with low CO2 emissions, and developing energy services on the upstream market. At the same time, the commitment to withdraw from oil and gas Exploration & Production (E&P)will enable it to focus on strategic business that is in line with Italy’s National Climate And Energy Plan (Piano Nazionale Integrato Per l’Energia e il Clima 2030).
(1) Equity stake; 99.477% share of voting rights.
(2) Consolidated capacity; 75MW net capacity.
