We outline the impact of the deal for the UK power industry, as well as the implications for China's ambitions to export its own nuclear technology.
The first new nuclear power plant in the UK since 1995 has edged closer to becoming a reality with the announcement that French energy company EDF and its Chinese partners - including China General Nuclear (CGN) – have reached an agreement on the £18 billion 3.2 GW Hinkley Point C (HPC) project.
In 2013, EDF and the UK government reached consensus on a Feed-in Tariff with Contract for Difference (CfD) which states that EDF will receive a strike price of £92.50/MWh for power produced at the plant for a period of 35 years, after which the company will sell power into the wholesale market.
The strike price is index linked, but will fall to £89.50/MWh if EDF goes ahead with the construction of a second EPR at Sizewell in Suffolk. But even this lower payment is more than twice current UK wholesale power prices which averaged £42.50/MWh in 2014.
The CfD, supplemented by government-backed infrastructure guarantees for the project, represents an attractive support package for EDF and its partners, but does not remove the substantial risk of delivering such a large and complex project.
However, the announcement comes at a time when reserve margins in the UK are falling and measures are being introduced to encourage sufficient investment in flexible power supply. Although first power production at HPC will come too late to alleviate the present squeeze on margins, its introduction will offset the impact of retirements from the existing reactor fleet.
We expect the first of HPC's two reactors to be commissioned in 2025, with the second following a year later. The majority of the UK's existing reactors are approaching the end of their operational lifetime and a number are expected to be decommissioned in the 2020s. Nonetheless, the commissioning of HPC will be sufficient to maintain nuclear's 20% share of the UK power mix
Hinkley Point C represents a first step for Chinese investment in the UK's nuclear industry but perhaps the greater prize for its new investors are the development rights for a Chinese-designed and built reactor at Bradwell in Essex.
China is looking to export its own nuclear technology and will be keen to demonstrate that it can deliver reactors in a market with one of the world's strictest nuclear safety regimes.
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