March 19 (Bloomberg) -- Electricite de France SA, the biggest nuclear power generator, won approval from the U.K. government to build the country’s first new atomic reactors in 25 years at Hinkley Point in southwest England.
Energy Secretary Ed Davey announced the decision today in Parliament. His go-ahead opens the way for EDF to build two Areva SA reactors totaling 3,260 megawatts of capacity, enough to supply 5 million homes for 60 years. EDF hasn’t decided whether to proceed with the project and is in talks with the government over what price it will receive for the power.
“Affordable new nuclear will play a critical role in a secure, diverse electricity supply for Britain and make a significant contribution to a transition to the low-carbon economy needed to tackle climate change,” Davey said.
Reviving the nuclear industry is central to U.K. plans for 110 billion pounds ($166 billion) of investment in low-carbon electricity. With all except one of Britain’s plants due to shut by 2023, failure to build the planned 16 gigawatts of new capacity by 2025 will jeopardize legally binding carbon emission targets, Parliament’s Energy and Climate Change Committee said March 4.
Caroline Flint, the lawmaker with the opposition Labour Party who speaks on energy, said her party supports the decision. Vincent de Rivaz, chief executive at EDF’s U.K. unit called today’s decision a “huge achievement” for the utility.
“To make this opportunity a reality, we need to reach agreement swiftly on the contract for difference for Hinkley Point C,” de Rivaz said in an e-mailed statement. “It must offer a fair and balanced deal for consumers and investors.”
The government is negotiating with Paris-based EDF over the guaranteed “strike price” per megawatt-hour of power from Hinkley that the utility will get. They’re also in talks over plans to decommission the plant at the end of its lifetime.
“Discussions on both these subjects are ongoing and intense, but I expect them to be concluded shortly,” Davey said. He said he’s seeking “value for money.”
The government is seeking to change the power market to ensure investors get a stable return regardless of prevailing prices. It’s planning contracts for difference, which guarantee the price of power from specific projects.
EDF is seeking a strike price of 95 pounds to 99.50 pounds a megawatt-hour for the Hinkley plant, a person familiar with the negotiations said in February. The rate is about twice the wholesale market rate for electricity.
“Planning approval will be a great step forward for EDF but the key issue for the project moving forward is agreement on a contract for differences and the strike price,” said Fiona Reilly, Norton Rose LLP nuclear services chief, before today’s announcement. “That would be a truly positive step and a signal to other developers and the market that nuclear new build in the U.K. is going to happen.”
Energy regulator Ofgem has warned of higher consumer bills as aging oil and coal-fired plants close. Environmental groups such as Greenpeace say an agreement between EDF and the U.K. will raise electricity prices for consumers.
“It will lock a generation of consumers into higher energy bills, via a strike price that’s expected to be double the current price of electricity, and it will distort energy policy by displacing newer, cleaner, cheaper technologies,” Greenpeace Executive Director John Sauven said in a statement.
Construction of other reactors in Europe in recent years has cost more and taken longer than initial plans. In France, EDF has seen costs for its new Flamanville plant more than double to 8.5 billion euros ($11 billion). That project, under construction since 2007 and due for completion in 2016, is using the same Areva reactor as proposed in the U.K. It was originally intended for completion last year.
The Flamanville plant will earn 72 euros a megawatt-hour, and that should be the baseline for the U.K.’s discussions with EDF, according to Barry Gardiner, a Labour member of Parliament who spoke during a debate with Davey today. Gardiner formerly was a competitiveness minister under the previous Labour government.
EDF’s Hinkley Point cost estimates given to the U.K. government already include lessons learned from construction at Flamanville, according to EDF.
In Finland, Teollisuuden Voima Oyj is targeting 2016 to complete its Olkiluoto-3 reactor, about seven years behind its original schedule. The company is also using the Areva model.
Areva’s reactor design was approved for use in the U.K. by the Office for Nuclear Regulation and the Environment Agency in December. Hinkley Point already houses two smaller reactors that EDF says are due to be decommissioned around 2023.
Construction at the last new nuclear station, Sizewell B in Suffolk, started in 1988 and generation began in 1995. While Britain has no specific target for new nuclear, industry has set out plans to build 16 gigawatts of new reactors by 2025.
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