Valuing UK industry

20 February 2019

The UK sector gathered in December at the Nuclear Industry Association’s annual conference to discuss plans to grow the country’s nuclear capabilities, NEI reports.

WHAT IS THE VALUE OF the UK nuclear industry? According to Richard Harrington, Parliamentary Under Secretary of State at the Department for Business, Energy and Industrial Strategy (BEIS), it is not its interest as a power source – but as an industry. He told delegates at the UK Nuclear Industry Association (NIA) annual meeting that for him nuclear is an industry, like aerospace or automotive. That is one where UK companies can hone their skills in a home market and leverage them to provide goods and services globally.

That theme was echoed elsewhere in the meeting, where the UK’s decommissioning skills were highlighted, from fuel cycle facilities to research centres to nuclear plants that have completed their operating lives. Half of BEIS’s entire budget is spent on decommissioning, he said, and the UK was developing it as an important industry.

But as important as end-of-life opportunities are, industry members in the audience wanted to hear from Harrington and other speakers about the opportunities for new-build and whether the UK would be able to initiate a nuclear project to follow Hinkley Point C. Both parts of the industry are represented in the Nuclear Sector Deal signed by industry and government a year ago and intended to grow the UK industry.

Hinkley Point C won permission from regulators to start concrete pouring for the nuclear base in November. EDF Energy’s Colin Matthews, the company’s non-executive chairman, told the conference that the 3200MW Hinkley Point C power plant was “to date on track,” and is expected to start electricity generation in 2025.

Matthews noted that last time the UK built a nuclear plant (Sizewell B) it had not followed through with another and “the supply chain was starved of new work”. EDF is pushing hard to get permissions and funding in place for its next planned reactor, Sizewell C, before the same thing happens again.

Matthews also told the conference that EDF Energy expected the cost of engineering construction to be 20% lower for Sizewell C than at Hinkley Point C. Cost savings would come from “taking all the learning” from the Taishan 1 EPR project in China and Hinkley Point, which are both owned by EDF Energy and China General Nuclear Power Group (CGN).

However, if Sizewell C is to become a reality financial issues have to be resolved. There has to be an investable proposal for a plant that could be under construction for a decade before it starts to generate and sell power.

Harrington stressed this point, saying the issues are financial and “The industry will be very limited if it relies on the government writing cheques”.

The Hinkley Point C project has a guaranteed price for its power production. But that does nothing to get investors over the period while the plant is being built. That wait for a return pushes the price up. So, for Sizewell C the UK government is investigating a ‘regulated asset base” model. In this model, the plant owner is awarded a licence to own and operate it. Crucially, a funding stream begins while the plant is under construction, which may cover the construction costs or the interest during construction. The model has sparked interest in the UK because it has been used for the Thames Tideway Tunnel, a huge sewer running under London.

Harrington said BEIS had been talking to pensions funds and other long-term investors about such a model, either for Sizewell C or, in later years, for small modular reactors.

Peter Hall, a lawyer at Norton Rose Fulbright said the UK “can and should build on the TTT RAB model”, but he did not underestimate the challenge. “The cost of capital has to be as cost-competitive as possible with other industries – even though we are looking for it for a ‘first of a kind’ project,” he said.

Setting out that challenge, he said that development costs are high and have to be recovered. The project will need a credit rating. “That’s hard to get for an immature project. A mature project can get a rating, but it takes time and money to get to the mature stage and how do you fund that?” The risk of not completing the project would also have to be addressed. Investors will be very wary of nuclear given its track record.

Finally investors would have concerns over their liability in the event of an accident – and that may be a reputation issue as well as a financial one.

The Moorside project in Cumbria, which has been scrapped after Toshiba failed to find a buyer for NuGeneration, has already suffered due to the uncertain financing model for UK new build. Tom Sampson, CEO of NuGen said in November that he believed the company was unable to find a buyer due to ‘a series of unplanned and uncontrollable events,’ which were complicated due by uncertainty surrounding financing models for new-build.

“The bankruptcy of Westinghouse and Chapter 11 was the start of our sale process and that process was further complicated by the emergence of a potential new policy framework from the UK Government to finance nuclear new build, the Regulated Asset Base – so-called RAB model – in the midst of that sale process,” Sampson said. “Unfortunately, given that the RAB model is still in early stages of development, has not been determined as policy yet and still faces a lengthy legislative process before it can be applied to new nuclear, it has not proven possible to find a buyer willing to take that level of policy and legislative risk when entering the UK.”

The annoucement by Hitachi Ltd, on 17 January that it was suspending its new nuclear power station projects in the UK “from the viewpoint of its economic rationality as a private enterprise,” further highlghts the need for alternative financing models for new nuclear.

Hitachi held detailed discussions with the UK government over various options for financing its Wylfa Newydd project in north Wales, but could not reach an agreement to the satisfaction of all concerned. Could RAB be the answer? BEIS is set to publish its assessment this summer. 

Skills update

Nuclear Skills Strategy Group (NSSG) also set out its updated strategic skills plan at the NIA conference in London. The plan is set to ensure UK nuclear employers can recruit the highly-skilled people they need, at every level and at the required rate, to meet the industry’s ambitious programme across power generation, new build, research and development, decommissioning and waste management.

Revised forecasts envisage a peak workforce of 100,600 full-time equivalents in 2021, which will require in-flow of 7000 skilled people per year into the sector.

“As we celebrate the one year on mark of our modern Industrial Strategy, it’s right that people are at the heart of our landmark Nuclear Sector Deal,” commented Richard Harrison Minister for Nuclear. “This Updated Nuclear Skills Strategic Plan will ensure that UK nuclear employers can recruit the highly skilled workforce they need at local, regional and national level. We want to increase the number of women in nuclear, double the current apprenticeship intake, and excite the next generation about the future of nuclear in the UK.”

Specific targets include plans to increase from a 22% female workforce to 40% by 2030; a goal of 2000 new apprenticeship starts each year in key nuclear locations (South West, North West, East and Wales), and plans for 72 nuclear PhDs to begin each year.

Sector transferability is also on the agenda, with a goal for recruiting an extra 20% of entrants from downsizing sectors such as oil and gas, or coal. These people can bring alternative thinking and skills sets to the UK nuclear sector.

Finally, targeted schools outreach and industry collaboration in sharing education and careers interventions will play a role. This include dedicated ‘career champions’ to work with the nuclear industry and ensure it is able to offer work-experience placements for students at various levels of education. 

Bringing forward Bradwell B

China General Nuclear Power told the NIA event that the date for the construction of a UK HPR1000 at Bradwell B had been “brought forward significantly,” following the demise of the Moorside project in Cumbria.

CGN is aiming to put Bradwell B into commercial operation “circa 2030,” Robert Davies, CGN’s UK CEO told the conference. Two UK HPR1000 reactors are planned for construction at the Essex site, which would be 66.5% owned by CGN and 35% owned by EDF Energy.

The UK HPR1000 is a version of the Chinese-designed Hualong One reactor. Its reference plant Fangchenggang 3 started construction in December 2015 and is scheduled to begin operation in 2019. The UK HPR1000 is undergoing the UK’s generic design assessment process (GDA), which regulators expect to complete in late 2021.  

Colin Matthews, non- executive chairman at EDF Energy, provided an update on Hinkley Point C
Peter Hall, Partner, Norton Rose Fulbright LLP, Kirsty Gogan, Managing Director, LucidCatalyst Ltd and Hannah Bronwin, Deputy Director, Nuclear Financing, Department for Business, Energy and Industrial Strategy participate in finance and cost drivers panel session
Richard Harrington from BEIS addresses the NIA annual meeting

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