* UK must replace ageing plants to prevent capacity crunch
* France needs foreign sales to keep nuclear sector alive
* Treasury intervention brought talks close to collapse
* Deal requires nuclear state aid approval from EU
By Geert De Clercq and Karolin Schaps
PARIS/LONDON, Dec 17 (Reuters) – Hinkley Point C, the first
nuclear plant order in Europe since the 2011 Fukushima disaster,
is the fruit of a decade-long process of reconciling two grand
national ambitions: Britain’s need to avert a power crisis, and
France’s need to keep its nuclear industry alive with export
contracts.
If the EU raises no state aid objections to the project’s
35-year power price guarantees and government-backed loans, it
will pave the way for more new nuclear plants and make Britain
one of the world’s main battlegrounds for reactor builders from
France, America, China, Japan and Russia.
Britain gave planning consent for the 16 billion pound (19
billion euro) plant near Bristol, southwest England, in March
and signed a deal with French state-controlled utility EDF
at the end of October.
The deal had been nearly decade in the making and by the
time the two European Pressurised Water Reactors (EPR) designed
by France’s Areva produce their first power, 2023 at
the earliest, another decade will have passed.
Years of talks came close to failure several times, and a
deal never looked sure, despite an auspicious beginning.
When former EDF CEO Pierre Gadonneix stepped out of a 2006
meeting with British Prime Minister Tony Blair at 10 Downing
Street, he could barely believe his ears.
“I was very surprised,” Gadonneix, now retired, told
Reuters. “I received a signal that EDF was welcome to develop
nuclear in Great Britain.”
Blair even said there would be no objection if EDF wanted to
take over state-controlled nuclear operator British Energy.
At the time, the nuclear sector in Europe and the United
States had been at a standstill for more than a decade following
the 1986 Chernobyl accident, and Britain had had a nuclear
moratorium in place since 1989.
But a few countries had started looking at nuclear again, in
particular Britain, which realised it was a decade away from a
severe power capacity crunch.
Of Britain’s 80 gigawatts (GW) of power capacity, around 40
GW would close down by the early 2020s, including seven of its
eight nuclear plants, and 30 years later all existing capacity
would need replacing.
At the same time, Britain’s North Sea oil and gas reserves
started to decline rapidly, turning it from net gas exporter to
net importer in 2004.
Faced with that pressure, Blair’s successor Gordon Brown in
January 2008 launched a White Paper on Nuclear Power that
plumped for the building of new reactors, a watershed for the
post-Chernobyl industry.
STAYING ALIVE
EDF, too, had good reasons to want to build nuclear plants
in Britain.
France operates 58 nuclear plants, of which most were
connected to the grid between 1980 and 1990, and the last one,
in Civaux, in 1999.
With more than 75 percent of French electric power already
nuclear, EDF knew there was little need for more nuclear plants.
Renewal of the fleet was also decades away, as France’s
pressurised water reactors have a 40-year lifespan, and similar
reactors in the U.S. have been extended to 50 and 60 years.
To keep the industry alive, France had to export.
“It was crucial to rapidly develop new nuclear opportunities
abroad, otherwise we would lose our competence,” Gadonneix said,
adding that the whole French nuclear supply chain was at risk.
In his last year as CEO, Gadonneix set up three massive
deals to sell atomic expertise abroad.
In September 2008, he signed a deal to buy British Energy
for 12.5 billion pounds. Later that year, EDF also bought a 49
percent stake in U.S. power group Constellation’s nuclear plants
for $4.7 billion and launched a project to build two EPR nuclear
reactors in Taishan, China.
The U.S. plan came to nothing; the shale gas boom has made
nuclear energy uneconomical there, and in June this year EDF
said it was pulling out of the venture.
But in China, where EDF has had a partnership with China
General Nuclear Power Corp for three decades, things moved fast,
thanks to the experience of Chinese engineers, who have been
building a series of reactors much as EDF did in the 1980s and
1990s. First concrete for the Chinese EPRs was poured in 2009
and 2010, and both are expected to become operational in 2014.
“The idea was to send young and old French expats to China,
so that 55-year-olds could teach 35-year-olds. It was a project
of knowledge transmission,” said a former French government
advisor.
PRICE GUARANTEES
Like the Channel Tunnel, a Franco-British project of similar
scale and cost, the nuclear venture took years to materialise.
After the British Energy acquisition and its name change to
EDF Energy, EDF had to clear various regulatory hurdles,
including buying a number of nuclear sites earmarked for new
plants, gaining regulatory approval for the new EPR reactor
model in Britain and winning planning and environmental permits
for Hinkley Point C.
“It’s taken essentially from then until now to put in place
the bits of the jigsaw,” said a company insider.
Multibillion-euro cost overruns and years of delay for two
EPRs being built in Finland and France, plus new safety
specifications following the Fukushima disaster pushed up
construction cost estimates to the point of casting doubt on the
viability of new nuclear in Europe.
With this in mind, Britain started a review of its power
market, aimed at creating more favourable market conditions for
low-carbon energy sources like nuclear and renewable energy.
“We have been clear all along about the fact that something
needed to change in the market design to make this scale of
investment possible,” a senior EDF Energy employee told Reuters.
The UK Electricity Market Reform (EMR), expected to come
into force next year, includes a mechanism to guarantee a
minimum electricity price for low-carbon power plants aimed at
giving investors certainty about future returns. The EU review
of the Hinkley Point deal will test whether the mechanism is
compatible with EU state aid regulations.
About two years ago, EDF and the British government started
talks on Hinkley Point C, focusing on how much the project would
cost, how waste and decommissioning would be paid for, the
guaranteed electricity price and how to spread risk.
“Government pushed hard to keep construction risk with EDF.
It was a huge battle,” said an industry source involved in the
deal.
HELPFUL HITACHI
Towards the end of 2012, the energy ministry and EDF reached
agreement, but the Treasury baulked at the figures.
It wanted to restart the process and revisit EDF’s books to
cut the strike price, a UK source close to the deal said.
“That’s when EDF in Paris started to say, ‘You know we can
pull out of this’. That’s when they were saying that maybe
they’d rather write off a billion pounds than putting tens of
billions into something which was not going to be profitable,”
the source said.
In February 2013, EDF’s junior partner Centrica pulled out
of the UK nuclear new-build programme, in which it held a 20
percent stake.
The Hinkley Point deal looked close to falling apart. EDF
cut 250 jobs in its British nuclear new-build division, and CEO
Henri Proglio said the negotiations could fail if EDF did not
get the return it wanted.
Investors in other British nuclear projects also got cold
feet; Japan’s Hitachi, which had bought the Horizon
nuclear build venture from Germany’s E.ON and RWE
in October 2012, warned it would not go ahead with its
own investment if the EDF deal collapsed.
“It was quite a helpful signal from Hitachi. It sent out a
message to the UK government that it can’t place all of its eggs
in one basket,” a second UK industry source said.
Besides Hitachi’s Horizon project to build up to five of its
Advanced Boiling Water Reactor designs in Wales and central
England, France’s GDF Suez and Spain’s Iberdrola
are planning a new plant in the northwest.
Russia’s Rosatom is also interested in building reactors in
the UK, and Britain signed an agreement in October to allow
Chinese nuclear companies to own UK plants.
Finally, it took a meeting between Britain’s Prime Minister
David Cameron and French President Francois Hollande to reignite
the Hinkley Point talks.
The Treasury said in June it would shortlist the project for
a loan guarantee, and the two sides signed a deal at the end of
October.
“The EPR project at Hinkley Point represents a great
opportunity for the French nuclear industry in a context of a
renewal of competencies,” EDF’s Proglio said at the announcement
of the deal.
