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Hinkley Point C strike price agreement is 'pivotal moment' for UK construction

Consumers will pay less for electricity if contractors can out-perform construction targets on the new nuclear plant at Hinkley Point C, after the government announced agreement with EDF Energy on a strike price for the long-awaited scheme.

The agreed strike price for Hinkley Point C is £92.50 per megawatt hour, which will fall to £89.50 MWh should the French energy giant go ahead with a second new nuclear development at Sizewell C. The strike price agreement lasts for 35 years.

Savings in construction would also be reflected in a reduced strike price, EDF said today. Up to 57 per cent of the construction value (£12bn) of the scheme ‘could’ be spent in the UK, EDF said.

Around 25,000 jobs will be created, with 5,600 people employed on site at the peak of construction.

The announcement today is the result of around 18 months of negotiations, during which time the £16bn project has been put back repeatedly.

EDF says around 25,000 jobs will be created, many of which will come from its main construction contracts, with Bouygues/Laing O’Rourke for the £2bn main civils, Costain for its marine contract and Bam Nuttall/Kier for preliminary and earthworks.

The government did say, however, that the strike price “could be adjusted, upwards or downwards, in relation to operational and certain other costs” and in relation to certain future changes in law (including in respect of specific nuclear taxes, and uranium and generation taxes).

‘Pivotal moment’ for UK construction industry

“This is a pivotal moment for the UK construction industry as we move forward with EDF towards mobilisation and the start of work on site,” said Laing O’Rourke chief executive Anna Stewart, representing the Laing O’Rourke/Bouygues joint venture partners.

She added: “The development of Hinkley Point C in Somerset will become the single largest construction project in the UK, and we are hugely excited by the opportunity to showcase the skills and potential of our delivery teams and be at the forefront of a nuclear energy renaissance.”

Laing O’Rourke’s Europe Hub chief executive Roger Robinson said: “The proposed nuclear power plant at Hinkley Point C is the start of the nuclear renaissance in the UK, and the BYLOR joint venture will be at the leading edge of a project shaping design for efficient construction. 

“The construction programme will require 3,600 operatives and 800 staff to bring it to reality, and we are committed to working with EDF and local groups and organisations to equip current and future generations in Somerset and across the UK with the skills they need to make this vision a reality.”

Costain said this morning it would provide the design and delivery of the water cooling systems for the nuclear power station.

The contractor will design and construct three marine tunnels, around 11 km in total length and each one approximately 7 m in diameter, to take in cooling water from the Severn Estuary for the nuclear reactor before it is cleansed, recycled and returned.

Finalisation of these agreements will be subject to EDF’s final investment decision on the project, for which it has already spent £2bn on areas such as land and legal fees.

EDF confirmed the project equity would be split with Chinese and French partners, and added that it is currently in the hunt for new investors.

EDF will take 45 to 50 per cent; Areva 10 per cent; China General Nuclear Corporation and China National Nuclear Corporation 30 to 40 per cent; and discussions are taking place with “a shortlist of other interested parties” that could take up to 15 per cent.

The risk of constructing the plant on time and to budget will fall with the equity partners.

Prime minister David Cameron hailed the creation of 25,000 jobs for the South-west, while energy secretary Ed Davey said the agreement was an “excellent deal” for the UK.

He said: “This deal is competitive with other large-scale clean energy and with gas – and while consumers won’t pay anything up front, they’ll share directly in any gains made from the project coming in under budget and from refinancing or equity sales.”

EDF said it expected a rate of return of around 10 per cent on the project. Its group chairman and chief executive Henri Proglio said the project represented a “great opportunity for the French nuclear industry in a context of renewal of competencies”.

The final investment decision will now not be taken until July 2014, having originally been pencilled in for the end of 2012.

As revealed by Construction News in February, the project is set for a UK Guarantee, where the Treasury will underwrite 65 per cent of the expected total costs prior to operations.

In order to proceed, agreement of the full investment contract, EDF finalising agreements with industrial partners and a decision from the European Commission on state aid will all need to be completed first.

EDF said that “a number of suitably qualified Chinese personnel will join the project to work alongside members of the project team” subject to approval from regulators.

Bridgwater and West Somerset MP Ian Liddell-Grainger told Construction News last week that he is preparing his constituency for Chinese management to enter the UK for work on Hinkley Point C.

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