appraisal – Hinkley Point C – Twin EPRs
Negotiations between DECC and EdF
have agreed a suitable electricity “strike” price claimed to enable the operation of the new nuclear build to be profitable. The price
will be maintained under a “contract-for-difference” with the
“difference” funded by the non-nuclear generators or by default by the
taxpayer. This appraisal attempts to define the level of the “strike” price
to provide a profitable operation for the new nuclear sector.
The EdF Financial Report
2012 shows a net annual income of just €3.3 billion, which is inadequate to
finance its post-Fukushima fleet augmentation programme, nor the UK new nuclear
build from its balance sheet. Its borrowings of €24.4 billion, £4.4 billion,
$6.4 billion and CHF1.4 billion are subject to an average interest rate of 5%.
It is proposed to construct
two 1.6 GW Areva EPRs.
Annual generation = 3,200 MW
x 365 x 24 x 0.9 load factor = 25 MWh x 106.
The current wholesale rate
is ca. £50/MWh which yields £1.25 billion. The capital charges are such that
EdF finds this to be inadequate. DECC has promised transparency once a deal has
been forged, but without the basic data some assumptions can be made.
The capital cost of the twin
reactors is now published at £16 billion, but the items this covers are unknown.
There may be additional costs as below.
There will inevitably be
rising materials and labour costs over the ten years construction period.
NLFAB requirements for
decommissioning and waste management
The assessment of inputs
into a “pension fund for retired reactors” requires complex analysis as the
reactors’ operational life is claimed to be 60 years, so that the actual
decommissioning and waste handling takes place from 2080 to 2100, while the
sequestration of the waste endures through the 22nd century. A
sensible arrangement would be the placing of an upfront bond together with
annual levy, not on MWh generated as proposed in the original White Paper as
operational problems may reduce the generation.
Initial fuel charge
The twin reactors require 2
x 1000 tonnes (2000 tonnes) as U3O8 of natural uranium
(containing 1700 tonnes uranium) to convert to its initial fuel charge in a
three tier process of conversion to UF6, enrichment (950,000 SWU) and
fuel fabrication to make 240 tonnes of uranium oxide fuel loaded into the two.
At current prices this costs
$400,000 to produce, which is £280,000. The cost of natural uranium as U3O8
is $40/lb but when the fuel charge is needed it will be in 2024 and by
then the demand which fell after Fukushima will have risen to cater for the new
build in China and Russia. Urenco the enricher will by then be privatised and
will want a commercial price at least double that current.
Fuel charging, testing and
For the first three years
until the two EPRs are finally operating at full capacity, taking into account
fuel costs, commissioning staff costs, around £0.5 billion as working capital
should be incorporated in the “strike” price calculations.
National grid connection
The current national grid
connection to Hinkley Point B will be inadequate for the twin EPRs, so as the
capital costs will be met by the consumer (or by subsidy) an allowance needs to
be made in the “strike” price to cater for interest on the capital outlay.
However, National Grid estimates the cost as £740 million, but the
cost of this is socialised across all users of the transmission system and not
charged to the developer.
Until the actual figures are
revealed by DECC it is assumed that the figure of £16 billion is comprehensive,
but three annual expenditures of £0.5 billion are added for start-up working
A financial premium of 10%
and although EdF is paying an average of 5% for its borrowings, 3% interest
charges are assumed, representing a 2% subsidy if from a “green” investment
5% financing adds £4.40 billion to the costs
The “strike” price has
to cover an initial interest charge of £730,000 and an amortisation of say over
ten years of £2.5 billion a year.
of “strike” price
The current EdF-Energy fleet
is running profitably with a wholesale electricity price of £50/MWh and the
initial capital has been amortised. At this rate Hinkley Point C would earn £1.25
billion revenue, which would represent just its running costs. To this needs to
be added £0.73 billion interest and amortisation costs of £2.5 billion.
This totals £4.48 billion, say £4.5 billion.
With annual generation of 25
million MWh, the “strike” price is 4.5/0.025 = £180/MWh.
The strike price for Hinkley Point C has been agreed at £92.5/MWh but
guaranteed for 35 years.
The strike price for Hinkley Point C has been agreed at £92.5/MWh but guaranteed for 35 years.
The above analysis is based
on assumptions due to the lack of transparency by DECC. The figure of £16
billion may be comprehensive or it may mean that the additional costs described
above have not been taken into account. The cost of the transmission lines
needed to connect the plants to the national grid are excluded.
No account in the evaluation
has been taken of inflation, which must be significant during the ten years of
Nuclear power costs three
times its fossil fuel competitors and the imposition of a realistic “strike”
price on the consumers and taxpayers is unaffordable while fossil fuels are
The electricity market is in decline due to efficiency savings and price rises. Businesses invest in capital plant with the assumption of rising markets for their products. Volume is needed to cover overheads and bring unit costs down. Utilities are fined if they fail to produce consumer savings by, for instance, funding loft insulation. This is no business environment for private capital and the assumption is it relies on the French and Chinese states for its provision.
It can be concluded that
even with an artificially raised strike price, new
nuclear cannot be funded by private capital and the reduction in electricity demand means that it
is not needed.
Whether foreign governments will be willing to finance projects in the UK with
little prospects of an acceptable return on capital remains to be seen.
Whether foreign governments will be willing to finance projects in the UK with little prospects of an acceptable return on capital remains to be seen.
John Busby 22 October 2013