Universal Registration Document 2022

Project Costs and Timeline

The project’s targets in terms of schedule and cost at completion from the last project review to date were announced on 19 May 2022 ⁽¹⁾:

• the start of electricity generation from Unit 1 is targeted for June  2027, compared to end-2025 as initially announced in 2016 ⁽²⁾;
• the project completion costs are estimated, in this review, in a range of £₂₀₁₅25 to £₂₀₁₅26 billion ⁽³⁾ corresponding to £31 to 32 billion in nominal based on the inflation indexes available at end-2021 ⁽⁴⁾;
• the risk of COD delay remains assessed at c. 15  months for each Unit, assuming in particular the absence of additional effects of the war in Ukraine.

The schedule and cost of electromechanical works and of final testing were not reviewed at this stage of the project’s lifecycle.

The main Civil works and MEH performance in 2022 were less than expected. Mitigating actions to recover the impact of c. 3-6 months are underway.

At the end of 2022, the actual costs incurred excluding interim interest for the project as a whole⁽⁵⁾ stood at £18.7 billion (at nominal values), or £₂₀₁₅16.1 billion. The interim interests stand at £960 billion.

At the end of 2022, the Group recorded a loss value of €0.55 billion in respect of the HPC project. This impairment is based on the 100bp increase in WACC between 2021 and 2022 in the UK market context, and on the update of the project schedule and costs. This impairment is reversible (see note 10.8.2 of consolidated financial statements at 31 December 2022).

Exchanges with the UK Office for Nuclear regulation (ONR)

ONR continues comprehensive regulatory oversight of the HPC project.

In Q4 2022, ONR approved, as part of its flexible permissioning regime, the End of Manufacture and release for transit of the RPV (Reactor Pressure Vessel) from Framatome, St Marcel. Looking forward, permissioning agreement will be needed from ONR for the Installation of the RPV.

In November 2022 there was a tragic fatal incident on site from crush injuries. The associated formal investigation by ONR continues.

Contract for Difference (CfD) ⁽⁶⁾

The HPC project company, NNB Generation Company (HPC) Limited and the Department of Energy and Climate Change (DECC) 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 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 producer sells electricity on the market is lower than the strike price set under the terms of the contract, the producer will receive an additional payment. If the reference price is higher than the strike price, the producer will be liable for the difference.

The key elements of the Contract for Difference are:

• the strike price for HPC is set at £201292.50/MWh. The strike price will be reduced to £₂₀₁₂89.50/MWh if the Sizewell C project reaches a positive FID, with further compensation from Sizewell C to HPC in order to share first of a kind costs of EPR across both UK projects, payable on the later of 31 December 2025 and a positive FID for the Sizewell project;
• the strike price is fully indexed to UK inflation through the Consumer Price Index (CPI);
• the term of the exercice of the mechanism is 35 years; in case of a delay to Unit 1 leading to its commercial commissioning after 1 May 2029 or a delay of Unit  2 leading to its commercial commissioning after 31 October 2029, the corresponding 35-year term of the exercise would be decreased commensurately with the deadline overrun;
• moreover, any delay in the commercial commissioning of Unit 1 exceeding 4 years after the deadline specified by the contract for Unit 2, known as the Longstop Date, authorises (but does not oblige) the UK Government to terminate the contract. In view of the impacts of Covid-19 on the project, the Longstop Date has been moved from 1 November 2033 to 1 November 2036;
• the project is protected against certain unfavourable 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).

There is no explicit volume guarantee in the CfD, nor is there a yearly ceiling; however, the contract is protected against change in law risk and any curtailment on the export of electricity so that the project is contractually hedged for these two events.

Exposure and management of foreign exchange, interest rate and inflation risks

Beyond the commissioning phase, the return of the euro investment is mainly dependent on fluctuations in sterling and UK inflation, as revenue is generated in sterling and linked to inflation.

HPC project is protected against power market price changes during the CfD period and is exposed to fluctuations in electricity prices beyond the CfD period.

In terms of foreign exchange, 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 return will therefore drop. A hedging strategy has been implemented at project level.

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 has implemented a gradual strategy to cover the risk of an increase in sterling value for its HPC investment.

Funded Decommissioning Programme (FDP)

Contracts for the Funded Decommissioning Programme (FDP) of HPC were signed on 29 September 2016. For detailed explanation of statutory requirement for nuclear operators, see 1.4.5.1.2.2.

Sizewell C

Sizewell C is a project to construct a nuclear power station with two EPR reactors at Sizewell in Suffolk, England. The Sizewell C power plant is expected to have a total capacity of 3.26GW, providing electricity to 6  million households for around 60 years.

This project is based on a replication strategy from HPC, replicating as much as possible the HPC design and the HPC supply chain. Sizewell C will benefit from feedback and experience from HPC as well as a developed UK supply chain, which should providemore certainty over schedule and costs. Organisation and collaboration schemes with Hinkley Point C are being analysed to secure the benefits of the replicability of the Hinhley Point C project, while taking into account the difference in governance (% of ownership at term, partners, etc..). Depending on the schemes, the risk of non-compatibility with the project’s deconsolidation objective could significantly increase.