UK's new nuclear moves forward - but slowly

This week sponsors of the UK’s most advanced new nuclear projects, the £24.5 billion ($34.7 billion) 3.2GW Hinkley Point C and the £14 billion, 2.7GW Wylfa Newydd, both announced new milestones in their development.

EDF, the sponsor of Hinkley Point C, gained approval for the project’s transmission line, while Japan’s Hitachi has created a new UK company to act as the engineering, procurement and construction contractor for Wylfa.

Progress for the two projects – located in Somerset, England and Anglesey, Wales, respectively – has been slow in recent months. The last major news on Hinkley, long expected to be the first to be online, came in October 2015, when EDF said that China’s CGN is set to take a 33.5% stake in the project.

The need for Hinkley to get its financing, sponsorship group, and construction contracts in order is pressing if it is to meet not only its own targets, but the UK government’s, and to keep ahead of international competition.

In November 2015, UK secretary of state for energy Amber Rudd laid out her plans for the country’s future energy supply. Rudd set out plans to phase out coal as a power source by 2025, replacing it with gas-fired, nuclear and renewable energy power plants.

The move to remove coal from the fuel mix means the UK must find ways to replace around a third of its existing capacity. The UK is using a combination of coal, gas, nuclear and renewables alongside complex electricity balancing mechanisms and emergency capacity contracts to provide power.

Rudd has said the UK will rely on a pipeline of new gas-fired plants and “a large increase in renewables” over the next five years, and in the longer-term, new nuclear is expected to provide the country’s baseload capacity, replacing the existing nuclear fleet, which is expected to come offline by 2023.

A strong pipeline of new greenfield gas-fired and nuclear projects is yet to materialise however. Developers have not rushed to announce new developments; gas prices are low, and there are numerous other gas and LNG projects set to come online in the coming years around Europe and beyond, capable of supplying the UK with capacity. The giant Nordstream 2 and Sabine developments are just two of these. Upcoming electricity transmission links will also change the way power is sold and shared across Europe.

Hinkley Point C will come online by 2025, EDF says, but this is already eight years later than projected and this was working on the assumption that construction would start in 2015. In contrast, Hitachi said this week that its Wylfa project company, Horizon, is working to achieve the necessary permissions, consents and commercial arrangements in order to begin construction in 2019. This would be with the aim of seeing first commercial operation within the first half of the 2020s, beating Hinkley. Both will have to stick to these claims if they are to meet the UK’s 2025 cut-off date for coal.

EDF’s struggles with its choice of technology and its construction progress on its other new nuclear projects have been very public. With global gas prices low, questions around the economics of new nuclear may also hinder Hinkley Point C’s progress. Already the subject of EU investigations around its state contract for difference, the financing of the project, expected to be raised via bond issues, may become increasingly unattractive to investors.

Local French press has reported that EDF board members are set to convene on 27 January to make a final investment decision for Hinkley Point C. This decision, however, has been deferred multiple times by the French energy giant. It remains to be seen which of Hinkley or Wylfa will be first to come online, if at all, and make good on Rudd’s vision of a UK powered by new nuclear by 2025; or if market economics and a lengthy development process mean mean projects like Hinkley Point C and Wylfa will ultimately struggle to come off. 

Asset SnapshotWylfa Newydd Nuclear Power Plant (2700MW)

Est. Value:
GBP 15,500.00m (USD 20,032.70m)
Full Details

Asset SnapshotHinkley Point C Nuclear Power Station (3200MW)

Est. Value:
GBP 22,500.00m (USD 29,735.83m)
Full Details

Transaction SnapshotHinkley Point C Nuclear Power Station (3200MW)

NNB Generation Company (HPC) Limited
$30,747.11m USD
Full Details

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