EDF pushes UK government to alter Hinkley Point C penalty clauses

EDF is trying to alter a key subsidy contract to avoid missing out on billions of pounds in guaranteed revenue after the Covid-19 pandemic caused further delays to Hinkley Point C, the first new nuclear power station under construction in the UK in almost 30 years.

The French utility is in negotiations with the British government over penalty clauses in a controversial agreement struck in 2013 to finance the building of the plant in Somerset.

EDF started work on the 3.2 gigawatt plant in 2016 but has repeatedly pushed back its completion date while costs have spiralled. In the latest setback, EDF warned in May that the first of Hinkley’s two reactors would not be completed until June 2027, 18 months behind schedule. It attributed 12 months of the delay to Covid-related problems, when it had to reduce staff on site from 5,000 to 1,500.

But the company cautioned that there was the possibility of a further 15-month delay to September 2028, adding that date could slip again if there was another wave of pandemic or there were knock-on effects from the war in Ukraine.

Hinkley Point C’s managing director, Stuart Crooks, said this week he was “confident” there would be no further slippage beyond the guidance given in May. But he added that EDF had made a case to the Low Carbon Contracts Company (LCCC), a government-owned body that administers energy agreements, that the pandemic was a “force majeure” event which should allow key trigger dates in the subsidy deal to be pushed back.

“We believe Covid has added a year to our schedule but we need to agree that with the LCCC so they can move the backstop date back a year otherwise we are a year closer to losing revenue,” he said. Analysts estimated one year of lost revenue would be worth £3bn based on 2022 prices.

The subsidy deal guarantees EDF a price of £92.50 for every megawatt hour of electricity it produces, when it eventually opens, for the first 35 years of its life. The revenue would be split with its junior partner on the scheme, Chinese state-owned CGN.

Penalty clauses in the subsidy agreement — which guarantees a price that is more than double those offered to developers of rival technologies such as offshore wind — would reduce the 35-year term if Hinkley is not generating electricity by May 2029.

EDF would lose one year of guaranteed payments for every year of delay up to 2033. If the delays extended beyond that date the government has the option to terminate the subsidy contract.

In a statement, the LCCC said it recognised that the pandemic was “capable of being a force majeure event” under the contract. But it added that conditions for granting relief on that basis included the requirement on EDF to “use reasonable endeavours to mitigate the effects of the force majeure (including any delays to the project) and to resume the performance of its obligations under the [contract] as far as reasonably practicable.”

Crooks admitted that the timeframe for the second reactor to come online had slipped from 12 to 18 months although EDF remained confident it can stick to the original schedule.

EDF has already pushed the construction budget of Hinkley up several times with the revision in May raising the total cost by a further £3bn to as much as £26bn in 2015 prices, compared to an estimate of £18bn in 2016.

Crooks said about a third of May’s revision to the budget was Covid-related. About £500mn was down to performance being “less than we would expect”, he added. The other cost overruns were due to issues such as completion of some of the outstanding design work and a failure to accurately estimate the quantities of materials, such as the number of bolts needed, to complete the build.

Earlier this week, the government gave EDF planning permission for another 3.2GW nuclear plant at Sizewell in Suffolk, which will be based on the same design as Hinkley.