POWER MARKET DEVELOPMENTS | 2022 REVIEW
New nuclear stake? Centrica is not persuaded
As the UK government tries to interest third parties in investing in Sizewell C, it is worth considering the attitude of its existing third party nuclear investor, UK energy company Centrica. Centrica has undergone several changes of strategy this
century as successive chief executives have tried to give more structure to its sprawling mix of activities, which stretch from gas exploration and production to retail sales as the British Gas brand. For much of this period the company tried to find a buyer for its 20% stake in the UK’s nuclear fleet. When the stake was acquired in 2009, then chief executive Sam Laidlaw said: “We believe nuclear energy is an essential component in ensuring clean, secure energy for the UK and we are proud to be part of our country’s nuclear renaissance.” His successor Iain Conn put the stake up for sale in 2018, saying he hoped to dispose of it within two years, but no buyer came forward. In 2021 Centrica gave up on the sale and last year it was
rumoured that chief executive Chris O’Shea (still in post) might add to the company’s nuclear holdings by joining a consortium of owners of the planned plant at Sizewell C. The company’s latest results suggest that rumour was ill-founded: although the company current nuclear interest had a bumper year, it aims to use the cash – and earnings from the recent elevated gas prices – to invest in other areas in the energy transition.
Nuclear paid off for Centrica in 2022. The year saw the end of generation at Hunterston B in January and Hinkley Point B in August, but improved plant reliability meant output was up
slightly, up by 5% (from 8342 GWh to 8714 GWh). However the price achieved was up 200% year on year (from £46.6/MWh in 2021 to £140/MWh), and nuclear’s reported adjusted operating profit was £724m (€826m), compared with a loss of £38m (€43m) in 2021.
The company should continue to see good returns for its nuclear sales from the remaining years of the AGR fleet (the units are due to close between 2024 and 2028) and Sizewell B. It has sold 5.0 TWh of nuclear electricity forward for 2023 at an average price of £203/MWh (€233/MWh) and 1.4 TWh forward for 2024 at an average price of £240/MWh (€274/MWh). It expects that prices will remain elevated and its large customers will see arrangements to hedge prices “rolling off”, so it expected to capture higher prices. Earnings will be affected by a government- imposed windfall tax (the so-called Electricity Generator Levy), which applies a 45% tax rate to revenues generated over £75/ MWh (€86/MWh) from 1 January 2023 to 31 March 2028. Currently the company pays a 34% tax on its nuclear earnings but it is taxed at 59% on its much larger gas business. With cash in hand from its gas and nuclear businesses the company is looking at investment in the future but currently it does not have new nuclear in its planning. Instead it is planning to leverage its experience in volatile markets, as it expects huge investment in intermittent renewable technologies such as wind and solar. The market rewards Centrica sees is the opportunity in battery storage, gas peaking generation, solar, hydrogen and carbon capture utilisation and storage (CCUS). ■
Hinkley Point C faces cash shortfall
There is a shortfall in funding the UK’s flagship nuclear power project, Hinkley Point C, EDF said in its 2022 results presentation. The project has been hit by rising inflation. In May last year
the project completion cost was estimated to be in the range of £25bn to £26bn bn (€28.5–€29.7bn). But that is in 2015 terms, which brings it to £31-32bn (€35.4–€36.5bn) based on the inflation indexes available at end-2021. Based on inflation indexes as of 30 June 2022, the estimated nominal cost at completion could reach £32.7bn (€37bn). In addition, the May 2022 review did not include the schedule and cost of electromechanical works and of final testing and EDF said in February at its annual results presentation that “the main civil and electromechanical works performance were less than expected in 2022. Mitigating actions to recover the impact of 3-6 months are underway.”
Although the “start of electricity generation” for unit 1 is
targeted for June 2027, EDF says there is a risk of further delay of the two units of 15 months. EDF said its agreements with CGN include a compensation mechanism between both shareholders in case of overrun of the initial budget or delays. This mechanism was triggered in January 2023. It said the project’s total financing needs now “exceed the contractual commitment of the shareholders”, and shareholders will be asked to provide additional equity, which will probably be needed in the second half of 2023. But EDF said, “The probability that CGN will not fund the project after it has reached its committed equity cap is high. In the event that CGN would not allocate voluntary equity, the EDF Group would be required to contribute in place of CGN.” CGN owns 33.5% of the project. ■
V The loss of generation from EDF’s nuclear plants
also hit its neighbouring countries. They are accustomed to rely on stable nuclear power volumes from France. But the EU’s regular report on European Energy Markets noted that in 2022 exports from France to Spain “practically disappeared”, while flows from Spain to France rose. In general, it said, French outages drove up electricity prices in France, “changing France’s traditional net exporter into a net importer role, not only from Spain but also from other Member States and the United Kingdom”. Flows between France and Belgium, Spain, Italy, Switzerland and Germany all saw a switch towards more power flowing into France more often. In Germany that was helped by the decision to
32 | April 2023 |
www.neimagazine.com
allow the three remaining reactors (Isar 2, Neckarwestheim 2 and Emsland) to remain in operation until April 2023, to secure the security of supply during the winter season. There were two areas of EDF’s business that alleviated
the negative impact of its nuclear outages. They were the exceptional performance of EDF Trading in a highly volatile market and better nuclear output in the UK. In 2022 EDF Trading increased its Ebitda to €6.407bn,
up from €1.2bn the year before, “in a period of very high volatility across all commodity markets”. In the UK, nuclear output amounted to 43.6 TWh, a
year-on-year increase of 1.9 TWh despite the shutdowns of Hunterston B in January and Hinkley Point B in August (both
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47
