Speaker: Nigel Knee, Head of Nuclear Policy EDF Energy
20 January, 2016 – meeting notes
Chair: Lord Palmer
Lord Palmer introduced the speaker from EDF
These are the challenges we face to deliver energy in the future.
Looking forward there will be a decline in the generating fleet as plant reaches end of life. To run the system securely we need an extra 20% more capacity than we have: 60 thousand MW, peak demand at the moment.
To be prepared for 2023 or so we need to build capacity now. We are already at a situation where that is quite tight situation. There need to be extra measures in place. We need to tackle the still significant proportion fossil fuel generation, which is producing Co2 which we cannot afford to emit.
We have an increasing share of renewables (wind etc). Nuclear has stayed the same at about 18% (having peaked at 27% in 2000). It will continue to decline.
The challenge really is what will replace coal or gas? EDF and government believe as much nuclear as we can afford. Looking forward 30 thousand MW capacity will shut between now and 2030.
Looking forward at a typical week’s load patterns a good way to meet demand is a tranche of nuclear and the flexibility provided by gas generation, some renewables and maybe some CCS.
Wind generation last night (for example) fell to 74MW. We cannot rely on wind. We can get a lot from wind, but we cannot get it all the time – the same with solar. Wind and solar can make a contribution.
The only options we have (as the government has made clear there will be no new coal) are nuclear, gas and renewables.
Hinkley Point C is £92.50MWh and will reduce if we build a second plant. For gas, for projects starting 2014, the cost of production is £94MWh. There is an uncertain future for fossil fuel prices. We are now in a period of low fossil fuel prices. Renewables (such as offshore wind, with all its restrictions) is approximately £130MWh
Hinkley Point C would have enough generation for 7% of the country’s needs. It would help us to avoid 9 million tonnes of CO2 (compared with alternative burning of gas). This one plant will provide 25,000 jobs during construction. As well as being a major economic boost to the local area it will also boost UK industry.
In October there was an intergovernmental agreement and the signing of a strategic investment opportunity with the Chinese company CGN to take forward Hinkley Point C with equity shares of 66% for EDF and 33% for CGN. In addition we signed heads of terms for two follow on projects: Sizewell C in Suffolk (EDF will have an 80% stake and 20% will go to CGN) and also a new power station at Bradwell (one of the first to have CGN take the majority share and EDF take the minority share). From the point of view of EDF, this is something we are happy to support them with, building on the long term partnership EDF France already has with CGN.
Some people say why does it take so long to conclude on such projects? It is necessary because it is a long term and very complicated project.
At this point the speaker talked the audience through slides of images of the elements of the plant. It is a very exciting project for the engineering community to be involved in.
The values we have adopted take elements from the different languages (English, French, and Chinese) and give us a sense of purpose humility, respect, solidarity, working towards a goal.
Questions and comments
What is the value of the cooperation with the Chinese and why are you working with each other?
Nigel Knee : The initial investment proposals were made in a different situation, starting with most of the UK utilities wanting to take a share of nuclear. Of the big six, now only Centrica and EDF are taking a stake (Centrica have a 20% stake in existing nuclear power stations). The Chinese are taking a longer term view than Centrica. We spoke to a lot of organisations around the world, additionally EDF group have had long associations with CGN in China. We know them very well, they were one of the companies very keen to talk to us.
From our point of view it is about sharing the risk and equity. From the Chinese company’s point of view, it is about learning from the West, how we operate here, our regulatory structures. They would admit that their regulatory structures (in areas such as environmental control) are less developed in china. They have under construction about 30 nuclear reactors in China and can bring a wealth of experience on building modern power stations. Clearly their longer term goal is exporting their technology around the world. The Bradwell project is a key interest for them in that respect. They will also get a good return on their investment.
We have in place processes that will always allow us to demonstrate that we are in control of what we are doing.
A burning issues on nuclear is waste. How much will it cost to get rid of it and is that cost included in the strike price?
Nigel Knee: The cost is built in. The Energy Act 2009 requires the operators of new nuclear power stations to hold separately money to pay for the disposal of the waste. It would be good to be able to show people what spent nuclear fuel is like (there are many misconceptions about it). For Sizewell, operating for 20 years, all the fuel taken out is stored in a fuel pond the size of a municipal swimming pool (although deeper than that). The plan for Hinkley Point C is to be able to store spent fuel onsite (depending on the government’s final decision on where to put spend materials) so the government has a responsibility to provide somewhere for the radio-active material to be stored. That programme is moving steadily ahead. It will take time to find the right place, where geology is suitable and people are happy to take it.
What is the view of the cost of Sizewell C, if the Chinese are going to bring in a lot of their expertise? Will the British taxpayer get value for money with the strike price.
Nigel Knee: The project is in the UK, so there will be a considerable amount of activity. Our approach is to use competitive procurement; that won’t just be on price, but also quality and other important factors. On a commercial basis, we estimate that 60% of the value of the construction project could go to UK companies.
All the investments are all ready signed?
Nigel Knee: In October we made announcements on strategic investment, follow-on projects and the terms of the contracts for difference. These are agreed in principle. We have not agreed the financial close on the project. The final approvals by the boards of EDF and CGN require a huge amount of due diligence. We are hoping to reach the point of agreement soon.
How will this be different from the engineering and structural challenges experienced in plants in France and Finland (two reactors of the same design) how will you deal with the risks that have caused these projects to be delayed and cost many times their original price?
Nigel Knee: EDF is not involved in the Finnish project, but we are involved with two similar projects and have learned lessons from them. In France there has been a realisation that we were not well organised at the start of construction; this led to design changes during construction and variations were introduced to improve the design. Being absolutely clear of who is responsible for what and getting people in your team who know what they are doing, is vital. We have learned that EPR is build-able, CGN also have significant experience of building EPR well and on time.
Under the CFD we will not get paid if the plant is late. If we come in under budget or operate the power station more cheaply than estimated, there will be a payback to the contract counter party.
The timescale problem, things always seem to be coming to fruition in the “next year”. Are there any more definitive dates?
Nigel Knee: There are many parties involved, the projects need board approvals. It is not in my gift to give dates. What I can say is that EDF have already committed huge amounts to this project and extremely committed to getting this project underway.
Government and investors have to think about how to make projects like these happen and avoid such long periods of preparation.
The cost of the project is of concern, the costs have risen. We will be protecting ourselves from high oil and gas prices, whilst locking ourselves into a very high price for nuclear. I cannot think of a more expensive way of avoiding carbon.
Nigel Knee: We are looking at nuclear because it delivers secure generation without CO2 emissions. You have to compare with other systems that provide energy without providing CO2. Using old prices in the calculation of costs can lead to conclusions that we should not build this project.
We have to look at this as a long term investment.
The meeting closed at this point.