Hinkley Point C- Incomes and Financial and Non-Financial Benefits Expected - Example

Hinkley Point C Inserts His Her Inserts Inserts Introduction Hinckley Point C nuclearpower station is an electricity production project to construct two-reactor nuclear power station, capable of producing 3200 megawatts. The project is located in West Somerset cost, 12 kilometres to the northwest of Bridgewater and 25 kilometres to the east of Minehead (EDF 2013b). The nuclear power plant occupies about 176 hectares of which 66 hectares with be used for permanent development. The project will be a partnership between the government and the EDF group. The project began in 2013 and is expected to be fully operational in 2023. The total construction cost of the project was placed at £16 billion (EDF 2013a). Strategic Fit The Hinkley Point C project is situated on the West Somerset coast. This will ensure that enough water is available to cool the reactors when in operation. The project is also surrounded by the Hinkley project A and B, thus the presence of skilled man-power is readily available at any point in time. The project was constructed when there is a push to shift from using natural resources for electricity i.e. natural oil, to other forms. The power station will not only provide jobs for millions of people (see appendix A), it will be a source of clean and efficient power. The project will also bring about other benefits and is expected to create many jobs in the UK manufacturing industry. The project is expected to lift the UK position as a global leader in nuclear energy. Reasons for the project According to EDF (2013b), it is estimated that over 40% of old power stations in the UK will be closed by 2025. The closure of these power stations comes at a time when natural resources are declining and the demand for electricity is expected to rise. The Hinckley Point C project will be the first nuclear power station built in the country after a period of over 25 years. The power station is expected to have the capacity for the production of low-carbon, reliable and safe electricity to power 5 million people with a lifespan of 60 years. Alternative options Based on the plans of the project, and the environment surrounding the construction of this project, I have come to the conclusion that Somerset is indeed the best place to situate Hinckley C. There is a lot of criticism about the construction of the project, where they claim that it is possible for the Fukushima nuclear disaster to occur in the UK. However, Hinckley is surrounded by two other power stations in a land that is quite elevated despite being near the see. While there are other locations that meet its elevation and closeness to the see, the closeness between the three power stations is what makes Somerset the prime location of the project. Incomes and financial and non-financial benefits expected The main purpose of the Hinckley Point C project is to provide cheap, reliable and carbon free electricity. The estimated total cost of the project is £16 billion, and is expected to support 20,000 to 25,000 person years of construction employment (Gribben & Roland 2013). Through its lifecycle, the project is expected to boost the GDP by £150 million per year, and offer about £70 million of salaries and supply chain benefits to Somerset. Construction of the project will require 50 million hours of work. This equates to about 25, 000 person-years of employment. The average time on-site for each job is one year hence there are about 25,000 different jobs over a nine year period, averaging 2,800 jobs per year. Of the total employment, 20% of the workforce will be collected from Somerset and the surrounding areas. Not all the workers will be those who were previously unemployed as EPZ plans –to recruit some workers from other jobs. In the project, 75% of the construction workforce will be those who were previously unemployed in the three-district area. The value added output for construction workers in Somerset stand at £32, 700 per Full Term Equivalent. This equates to £165 million after the nine year period (Mace, 2013). Risk and Their Impacts The construction of any nuclear power plant is full of risks. Since the Chernobyl disaster, it has become common to ensure that the utmost protective mechanisms are put in place to mitigate the risks connected with the construction of nuclear facilities. The various risks and their impact for this project are presented below. The main risk and one that has even sparked protests before the project has gained ground is disposal of waste. The project regulators will not accept the storage of nuclear waste due to the fear that some waste may contain fuel fragments. As such, an encapsulation facility will be constructed to take care of the waste (EDF 2013c). The second risk is the unavailability of a disposal facility or repository for the reactor material. The possible impact is that this will limit the ability of the site to dismantle the two reactors. In order to mitigate this, dialogue will be carried out with NDA, Stakeholders and regulators. The third risk is that active waste water management (AWWM) strategies will conflict with the Environmental Assessment authorisation. The possible impact is that this may lead to a delay in schedule plan as they must correlate and any strategy developed should conform to the EA. In order to mitigate this, the project managers will identify Active Waste Water trends in order to identify conflicts early. The project managers will also construct Waste Water modelling tool from Gasion Science data (EDF 2013c). The fourth risk is the universal risks of future floods. Due to the proximity to the coast, and unprecedented climate changes, the risks of floods is considerable. Following the Fukushima Nuclear disaster, the population of the UK is very concerned about the steps taken to prevent a repeat of this situation in the country. The possible impact is the destruction of the reactors leading to loss of investment, loss of electricity supply and the possible contamination of both the land and surrounding water supply. In order to mitigate this, the design was carried with appropriate safety factors as pertaining to floods. Fifth, there is a risk that the project will not follow the Best possible Practice. The possible impact of this is that there will be delays to the project, particular the construction of the reactors and the cooling system. In order to mitigate this, the project will have a close liaison with Environmental Protection Agencies Finally, there is a risk that the site may lack appropriate fire suppression and detection facilities. The risk of a fire in the nuclear power plant is valid and is quite high. The possible impact is that the project will not be approved for operation as it does not fulfil the SILWR safety clause. The mitigation of this is the evaluation of the fire detection and suppression facilities at each point of construction. Timescales The entire project (site preparation and construction works) is expected to take a maximum of nine years. The initial site clearance began in 2013, in preparation for the initial ground work. Site clearance and preparation is expected to continue to mid-2014 after which the project will begin. The main phases of the project will comprise of: I. Site preparation works comprising of sire clearance, developing compounds to house the contractors, major earthworks to terrace the site and clear platforms , construction of a new sea wall, and installation of a new drainage system (2013-2017) II. Construction of a temporary jetty to enable transportation of construction materials. (2015 – 2017) III. Tunnelling for the cooling water pipes (2016 – 2019) IV. Construction of foundations and the sub-structure. (2017-2020) V. Construction of Buildings, installation of mechanical and electrical services and fitting of all buildings. (2020-2022) Construction will peak after six years and at this time, it is expected that over 5000 employees will be working at the site. Costs The project is set to cost about $16 billion with 14 billion being utilized for construction of the twin EPR reactors each reactor costing 7 billion and £2 billion being used for miscellaneous costs such as site acquisition, preparatory work for regulatory authorities and the training of future employees once the project is done (Lucas 2013). The construction of the Jetty is estimated to cost £156m and will be carried out during the initial stages of the project to allow the delivery of bulky construction goods. The tunnelling of the cooling pipes is expected to be costly accounting for about 9% of the total project cost. Annual wages expected during the lifecycle of the project are estimated at £85 per year. Of this amount, £32 million is expected to cover home-based workers while £53 million to cover non-home-based workers. This means that the total wages over the project lifecycle will be just below £800 million. Investment Appraisal In the next few years, the UK will be dependent on only the Hinkley project for its nuclear power. However, looking at the specifics of the project, we find that the cost of this electricity is just too high, and the risks are just too many. The government made a deal with the EDF on the strike price setting it at £92.50 per megawatt-hour for a period of 35 years (Green & Staffell 2013). This is quite high compared to other nuclear power stations and is not a big improvement to what the public is paying at the moment. Another problem is that while EDF is planning to charge exorbitant fees, the availability factor of the proposed reactor is only at 91%. The public is thus expected to pay a high price for a power source that on the onset is not highly reliable (Davey 2013). Payback Period = £16 billion / (£92.50*5 million) = 34.49 years NPV = using a 3.5% discount rate and a repayment rate of £35 per megawatt-hour = = = £57.5per megawatt-hour IRR is derived from NPV= £57.7 = -£16bn + (+)*5 million = 2.146 = 214.6% This means that after 35 years, EPZ should expect a profit of 214.65% of their capital investment of 16 billion. Source of Funding 16 billion has been set aside to construct the Hinckley project. A treasury guaranteed debt will sponsor 65% of the project’s expected cost before the project begins backed by a security package from EDF and their sponsors. The share of equity for the project is as follows: EDF group averaging between 45% – 50% of the total cost, Areva taking up 10% of the cost, China Generating Nuclear Corporation and China national Nuclear Corporation accounting for about 30%-40% of the cost, and other interested parties to account for about 15% (AREVA 2013). The EDF group has outstanding experts who have ample skills and experience in the nuclear supply industry. The company operates 15 reactors all over Europe and is considered a leader in nuclear power. The high level of investments that the EDF group has in its 8 reactors proves that it is able to undertake this project to the satisfaction of all. AREVA is another renowned company in the nuclear supply field. The company has established a budding presence in the UK nuclear industry by providing nuclear fuel, expertise and services. The company has also worked with EDF in several projects. The two Chinese partners have established themselves as capable companies in the nuclear power industry. China General Nuclear Corporation (CGN) has constructed 15 nuclear power stations all over the world and is in the process of building two EPR reactors similar to Hinckley project C, in Taishan. CNNC on the other hand has constructed 9 nuclear reactors that are at the moment operational and 12 that are still under construction. Evaluation In the next 9 years, the Hinckley project will be constructed at a cost of £16 billion. The project is expected to create employment both directly and indirectly while also acting as the main power source of nuclear electricity once it is completed. The government has already signed a strike price either EDF at £92.50 per megawatt-hour. The cost-benefit of the project is too unbalanced as the unit price is too high, the potential risks are also too high and when compared to other projects, the construction costs are also too high. Considering all these issues, we find that the project is not justifiable for the UK population. Appendix A1: Central Range of Workforce Home-based Of Which Non-home based Of Which Year Total 3 districts Rest of Somerset Rest of CDCZ Total 3 Districts Rest of Somerset Rest of 60 minute zone 2014 90 50 10 30 90 70 10 10 2015 320 160 50 110 380 300 30 60 2016 1350 690 210 460 1630 1280 110 240 2017 1,900 1170 220 500 2520 1980 170 380 2018 1840 1055 235 550 2970 2330 190 440 2019 1900 970 290 640 3700 2900 240 550 2020 1680 860 260 570 3130 2460 210 470 2021 1280 650 200 430 2080 1630 140 310 2022 830 420 130 280 1080 850 70 160 Appendix A2: Initial overall cost breakdown Phase 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 2021/2022 New Construction Projects £30m £187m £2.3bn £3bn £3bn £3bn £1.3bn £800m £800m Waste and Nuclear Materials Management 0 0 0 0 £130,500 £150,501 £130,502 £130,503 £130,504 Decommission and Termination 0 0 0 0 0 0 0 0 £8,623,706 Site Support 0 0 £13m £13m £13m £13m £13m £13m £13m Stake Holder support               £12,233 £662,234 References AREVA. 2013. Structure of the partnership for Hinkley Point C project. AREVA Energy Available at http://www.areva.com/EN/news-9986/structure-of-the-partnership-for-hinkley-point-c- project.html [Accessed on 16 March 2014] Davey, E. 2013. Hinkley C is not a deal at any price but a deal at the right price. The Guardian Available athttp://www.theguardian.com/environment/2013/oct/21/hinkley-c-deal-rice [Accessed on 16March 2014] EDF energy. 2013a. Agreement reached on commercial terms for the planned Hinkley Point C Nuclear power station. EDF Available at: http://newsroom.edfenergy.com/News- Releases/Agreement-reached-on-commercial-terms-for-the-planned-Hinkley-Point-C- nuclear-power-station-82.aspx [Accessed 16 March 2014] EDF energy. 2013b. Hinckley Point C: Proposed Nuclear Development. EDF available at http://www.hse.gov.uk/nuclear/links.htm [Accessed 16 March 2014] EDF energy. 2013c. Hinckley Point C: Development Consent Order Application. EDF Available At; http://www.edfenergy.com/about-us/energy-generation/new-nuclear/hinkley-point- c/book [Accessed 16 March 2014] Green, R. & Staffell, I. 2013. The impact of government interventions on investment in the GB Electricity market. Energy Policy Research Group. Available at http://www.eprg.group.cam.ac.uk/wp content/uploads/2014/02/GreenstateAids.pdf/ [Accessed 17 March 2014] Gribben, R. & Roland, D. 2013. Hinckley Point nuclear power plant to create 25,000 jobs, says Cameron. Daily Telegraph.http://www.telegraph.co.uk/finance/newsbysector/energy/10611003[Accessed 17 March 2014] Lucas, C., 2013. The true costs of the Hinkley Point C reactor. The Guardian. Available at: http://www.theguardian.com/environment/2013/oct/21/true-costs-hinkley-point-c [Accessed on 17 March 2014] Mace Group. 2013. Hinkley Point C nuclear new build socio-economic strategy. Mace Group Available at:http://www.macegroup.com/projects/hinkley-point-c-nuclear-new-build- socio-economic-strategy [Accessed on 16March 2014] Reed, S. & Castle, R. 2013. Britains Plans for New Nuclear Plant Approach a Decisive Point, 4 Years Late. The New York Times. Available at http://www.nytimes.com/2013/03/16/business/energy-environment/britains-nuclear- Plans-at-a-critical-point.html [Accessed on 16March 2014] Read More