The project’s financing needs will exceed the shareholders’ contractual commitment by the end of construction, which will lead the Group to assume, by the end of construction, a portion of the financing needs that is greater than its share which would lead to difficulties in financing the project in the event of a shareholder misalignment.
The project’s IRR is also sensitive to the exchange rate and could be reduced in the event of a significant fall in the pound sterling against the euro, in particular as a result of the implementation of the Brexit mentioned above; it could also be sensitive to inflation and electricity market prices(1). Finally, the governance of the project could also be affected in the event of misalignment between shareholders. Changes to these different factors could have a significative impact on the Group’s financial position.
EDF has also signed two other agreements with CGN relating to two nuclear projects in the United Kingdom: Sizewell C and Bradwell B (see section 1.4.5.1.2.5 “NuclearNew Build Division”).
During development phase previous to final investment decision, EDF’s share is of 80% and CGN of 20%. EDF has planned to pre-finance the development up to its share of an initial budget of £458 million. Final investment decision is likely to be made by mid-2022. If it is postponed, an agreement should be reached on the financing of the additional costs incurred.
This project is based on the assumption that third party investors will invest a very large majority and EDF plans, at the date of the final investment decision, to become a very minority shareholder with corresponding limited rights and to deconsolidate the project from the Group’s financial statements (including in the calculation of economic indebtedness by the rating agencies). At this stage, it is not certain that the Group will achieve this objective.
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 market. 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. None of these conditions are guaranteed at this time.
The British government announced on 14 December 2020 that it was entering into discussions with EDF regarding the financing of Sizewell C.
Failure to obtain the appropriate financing framework and appropriate regulation could lead the Group not to take the investment decision or to take a decision under less than optimal conditions.
With regard to the Bradwell B project, the assessment by the Office for NuclearRegulation of the generic design of the UK HPR1000 (UK Hualong) reactor model is underway and the development of this technology at the Bradwell B site in the UK may be impacted by this process. In January 2021, following an initial assessment of the generic design, the Environment Agency published conclusions stressing that this design has many environmentally acceptable elements, but that certain issues relating to heating, ventilation and air-conditioning systems, radioactive waste disposal methods and the use of feedback from the preparation of the various safety cases during the project must be addressed by the project. The Environment Agency expects to complete its design assessment of the Bradwell B project in early 2022.
Insofar as the projects Sizewell and Bradwell involve EDF and CGN, they are likely tobe impacted by changes in diplomatic relations between the United Kingdom andChina.Dans la mesure où les projets de Sizewell et Bradwell associent EDF à CGN, ils sont susceptibles d’être impactés par l’évolution des relations diplomatiques entre le Royaume-Uni et la Chine.
Following the signature in March 2018 with NPCIL (Nuclear Power Corporation ofIndia Limited) of a non-binding Industrial Way Forward Agreement (IWFA) for the construction of six EPR-type reactors at the Jaitapur site, in India, with a total power of around 10GW, in accordance with the timetable set by the IWFA, EDF and its partners submitted a complete non-binding conditional offer to NPCIL at the end of 2018. In this offer, the EDF group and its partners will supply all the studies and equipment for the nuclear island, the conventional island, the auxiliary systems as well as the heat sinks and galleries of the EPR technology. EDF will not invest in the project and the NPCIL client will be the overall project manager and integrator in the implementation phase (bearing in particular the risks of licensing, construction, assembly and overall integration). (see section 1.4.1.2.2 “Other "New Nuclear" projects” and section 1.4.5.3.6.2 “South-East and South Asia). In 2020, the technical and commercial convergence process continued with NPCIL to enable EDF to submit a binding technical and commercial offer in the first half of 2021, subject to the establishment of a satisfactory nuclear civil liability framework. At the end of 2020, there was still a lack of convergence on some significant technical-commercial subjects. EDF aims to sign a General Framework Agreement in the months following the submission of the tender, which would allow project implementation activities to be launched.
The project has the risk profile of a supplier of engineering services and equipment supplies; its value therefore lies in the realisation of the margin included in the price of the services sold. Like all large complex industrial projects, this project presents technical, industrial and cost control risks for the scope under the responsibility of EDF and its partners, as well as a risk relating to compliance with pre-defined milestones, particularly with regard to the expected revenue model. In addition to the country risk, the conditions related to the nuclear civil liability framework in India and the securing of the project’s financing plan must be resolved before the final contracts are signed.
A fundamental element for the success of an EPR project and for the operating safety of EPR reactors in which the Group is involved is accounting for the needs of the final operator, who is responsible for operational safety, from the beginning of the design phase and throughout the design and implementation of the EPR project.
Framatome can expose the Group through its activities for other nuclear operators or customers in France and abroad. Group exposure may be financial or involve theGroup’s reputation. Framatome’s industrial performance remains strategic for EDF Nuclear Operator in France and the United Kingdom. The successful completion of an EPR project depends on quality and compliance with contractual clauses in Framatome’s production of studies, components or services for each EPR Project.
In 2020, Framatome continued the action plan aimed, through studies and tests, at identifying and dealing with the deviations observed in 2019 in the stress relieving heat treatment processes used to weld primary or secondary circuit components. With the approval of the safety authorities of the countries in question, the units affected by these deviations continued to operate and a procedure was agreed with theFrench authority to deal with deviations relating to equipment in the course of manufacture. To date, Framatome has not received any formal complaint from its customers.
Framatome’s integration into the EDF group assumes that new nuclear reactor projects will be developed in France and abroad and aims to develop synergies to enhance the attractiveness of the French offer. Failure to achieve these objectives could jeopardise the competitiveness of the nuclear sector in France and that of theGroup in its international development, and the success of all EPR Projects.
Other issues and risks specific to nuclear activities, whether in terms of nuclear safety, control of operation and maintenance operations, long-term commitments or the fuel cycle, are specified in section 2.2.5 “Specific risks related to nuclear activities”.
(1) beyond the CfD period.
