lundi 15 août 2016

Hinkley thorny Point


Hello Readers,
Hope you are doing well this summer. These holidays have been spilled with a lot of surprises, the last but not the least being the Brexit.
As a neighbor of Great Britain,(and a good practitioner of its language too, ahahah), I was already betting on "yes to the EU" (it has been one of some mistakes I've made this year), I was wondering about the consequences of this referendum, without judging it, because as the say puts it:
"Vox populi, vox Dei" : people's voice is God's voice. (sorry for the atheists or agnostics, it's the say!)
So, repeating myself, I was wondering about Brexit consequences on a few issues influencing the global energy sector.
As you know, this blog intends to make you visit the French energy sector, in oil and gas, nukes and renewables. But it aims also at making you understand how France is functioning in general: every translated article gives you the hexagonal view on dealing with energy transition, oil price fall and so on, so that you have an insight picture of how things are working in my country.
I know it's quite ambitious ahaha, but even if I am a European, know 4-5 languages, I found it difficult to guess what's life is on beyond the Rhine, the Channel or the Atlantic Ocean.
We are so far involved in our daily life that some events happening abroad takes us by surprise, because we don't live there, so we can't understand what's going on there.
So even if we, French people, don't live far from England, have many links with this country, even French people try to speak better English, ahahha! the decision of leaving the UE left us mouth wide open.
And of course, HINKLEY POINT could not escape my inquisitive pen!
So let's go there, are you ready?

At the end of July, it looked like everything was relying on EDF final decision taken by its board of Directors:

Following is an article taken from les "Echos", an independent economic daily paper, about the subject:

The final decision shall be put to vote during EDF’s council of July, 28th. The impact of independent administrators’ votes shall be of importance.
Mr. Jean-Bernard Lévy’s wish, EDF’s CEO, has been settled : the final investment decision in the Hinkley Point EPR, located in South-West England, shall be taken before the end of the month, during July, 28th council. The notifications were sent to the administrators late in Thursday evening, after a meeting hold between François Hollande and Theresa May, the UK’s new Prime Minister. « The subject has been raised during the dinner », said a source close to the case. « EDF was waiting the « go » from the Head of State. »
This point was a thorny issue for the public group, as the decision has been postponed several times during last months. The project, amounting to GBP18 billion (namely €22 billion), financing excluded, is deemed to bridge the future of the French nuclear sector, according to EDF’s perspective. This decision shall launch the construction of both nuclear reactors, whereas EDF has already engaged GBP2,4 billion in prerequisite studies, then the earthwork, roads in the site, and other preparatory works. The first concrete is scheduled for mid-2019, corresponding to a supposed commissioning in 2025.
If some partners bet that the vote of the council will be positive, the decision will in fact be taken by the independent administrators (Laurence Parisot, Colette Lewiner, Philippe Crouzet, Bruno Lafont and Claire Pedini).  The State, which holds a 85% stake in the public group, has six administrators, who represent it and who will be favouring the project. Nevertheless, the six staff representatives are fiercely opposed to the Hinkley Point project. Jean-Bernard Lévy, EDF’s CEO, who is accounted among independent administrators, has got a casting vote. « Jean-Bernard Lévy would not submit this decision to vote without waiting a positive result. But everyone is responsible and should vote according one’s heart », highlights an administrator.
Staff representatives, who are denouncing a « method to forcing decision » have already submitted an emergency judicial case this Monday in the name of the company’s staff central committee. The CGT- CCFE-CGC and FO federations (left-wing industrial trade-unions)  indicated on Friday, in a press release, that they will support the representative instance in doing so. In April, the Central Committee obtained the right to be consulted on the decision, but as the organisation pointed that a lack of documentation prevented it to take a position, it filed a motion for urgent proceedings against the group. Whereas the hearing was scheduled on next September, 22th, EDF’s chair board maintained the date of July, 4th to examine the project, and since then, deemed that the consultation has been forgone, even if no position were published. « In my opinion, there is a judicial risk », said an administrator, who is not a staff representative.
Opponents to the project shall carry on expressing their position till Thursday, hoping to convince some irresolute members of the board. In taking this decision, any vote will play an important role.
Anne Feitz, Les Echos


Here I give you a view of what was happening inside EDF, inside its board and its staff representative institutions. The situation has been quite thorny, but the internal vote "yes" has finally been granted.

So you can see that a very important point for Great Britain has not been raised : the China stake in Hinkley Point project. Nevertheless, questions remain and other concerns about the project are still pending:
Now I carry on the internal story inside the French power operator...

EDF’s Board of Directors must vote on its official position on the Hinkley Point EPR, in England. That’s a £18 billion project, which raises significant concerns.

Tough choices are open now for EDF’s monumental project in the United Kingdom. This project is highly questionable, first because of its sky-rocketing cost and second, because of the industrial risks it may entail. « Today, EDF’s end has begun » has tweeted Cyrille Cormier, a Greenpeace project manager in energy field. Conversely to this position, EDF’s CEO, Jean-Bernard Lévy deems that the project is absolutely necessary to grant his own future and that of the French nuclear sector. Here is a synopsis of some thorny points of this high risk project.

What about the financial risk ?

If the project arises so many concerns, the first reason comes from the considerable scale of the risk allocated to EDF. The investment amounts to  £18 billion (namely €22 billion), net from the cost of financing, in which EDF is committed up to 66,5% (beside China’s CGN whose stake will amount to 33,5%). Previously, EDF considered to involve Areva and other partners in order to have a minority share and to be able to deconsolidate this stake, but Areva’s problems put an end to this scenario. The project corresponds to a €1,5 billion per year, namely a 15%share of its annual average investments. EDF deems this percentage as acceptable.
Project-scepticals don’t share this view.  In fact, the EBITDA amounted to €17,6 billion, but the company’s revenues decrease with power price fall or the decrease of its market shares following the opening of the power market to competition. Moreover, the operator is expected to buy back Areva’s reactors division (namely Areva NP) for some €2,5 billion and invest in the maintenance and the life-span extension of the nuclear park in France (such operation being named « great refit »), which would amount to €51 billion.
In order to decrease a net indebtedness amounting to €37,4 billion, a recapitalisation was announced in late April (amounting to €4 billion, on which €3 billion have been subscribed by the State), together with a dividend paid in shares, a program of asset transfer (around €10 billion) and finally with an annual economy plan (€1 billion by 2019). But many observers expect that all these measures won’t be enough.
Nevertheless EDF’s direction stands for the contrary, confirming even that the English EPR will be highly profitable with a ROI amounting to 9%, after taxation. Indeed the revenues will be granted on a thirty five years’ time, thanks to a private agreement, judicially sure : this agreement grants not only the power sale price (namely £92,50 per MWh, indexed on inflation), but also the volumes of power to be sold.

Industrial risk

As delays and overcosts cumulated on Olkiluoto projects in Finland and on Flamanville project in France, EDF’s expected schedule of six years and half to build Hinkley Point seems quite optimistic. Or, every delay will impact the expected profitability. The risk is as much higher as the British nuclear watchdog has requested some modifications on Flamanville model, which will make the Hinkley Point EPR, the first of a new series. Another risk is linked to the « falsifications », which have been discovered in Areva’s manufacture in le Creusot, following the defaults detected on the Flamanville tank : some people question the ability of Areva to produce the parts of the English reactor. Following this, the manufacturing of the lid and the bottom of the tank have been awarded to Japan Steel Works.

Why EDF did not want to delay the project ?

Whereas EDF’s staff would have preferred to schedule the project later for some years, in order to take lesson from the experience return on other EPR, like those of Flamanville or Taishan in China, on the contrary EDF’s CEO intends to launch the English project, the soonest the best. A delay could have endangered the agreements which have been already concluded or, worse, would have given time for the British government to choose a competitor. In EDF’s view, the project is crucial, first because all the teams, which will end Flamanville project, will be put on the English one, and that’s necessary to maintain Areva’s know-how and activity while waiting other orders in France. The issue consists also in restoring the credibility of the French nuclear sector in export fields. After Hinkley Point project, EDF expects another order of two reactors on Sizewell site, in West England.

Who are the opponents ?

If opposition stemming from antinuclear NGOs or green MPs is quite normal, the opposition of some staff or managers of the public group arises a logical concernl. As such, the resignation of the financial director,Thomas Piquemal, sheds light on the internal oppositions to the project, even among the management. At his hearing before the Parliament in early May, he justified his position by the following words : « Who will bet a 70% share of one’s heritage on a technology, whose no ones knows if it's working, whereas since ten years every effort has been made to build it ? »
Moreover, the financing plan announced in April did not quiet down all the internal concerns. The trade-unions, particularly the inter-unions group CGT, CFE-CFC and FO, rings the bell because of the risk looming on « the industrial sector, EDF’s investments on the national territory and, consequently on employment in France ». On July, 4th, the Company Central Committee (the central staff representation institution of the group) decided that the information given by the management in order to build its own position were not affordable or enough to give its official position and, for this reason, the institution has filed a case against the management’s decision to carry on with the project without its advice. The hearing shall take place on September, 22nd. Then, the NGO representing the staff shareholders considers that the project « threatens the company’s viability » and requests the intervention of the Authority of Financial Markets. In late July, this institution launched a thorough inspection of EDF financial information since 2013. On its part, EDF says that it has launched an internal audit in its management, after which the number of people favoring the project amounts to 81-92% of the interviewed people.

What happens on site ?

In face of Bridgewater Bay, on the West Coast of England, Hinkley Point site has been waiting the official go for months. EDF already paid £2,5 billion to prepare the 175 hectare field, where both EPR will be built. Earthworks, cement factory, piped water system, power generation… all preparatory works are well advanced and they never have been stopped completely. Today some 600 persons work on site, to build the housings for workers and engineers. EDF expects that some 5,600 staffs will work on site when the works will run at their full speed. « Workers are waiting, spade in hands, and ready to start working, said the Unite trade-union. They only wait for the go »


So, repeating myself, my aim is not to give you a strict chronology on facts, which is quite abundant in Internet resources. I try to make you understand what happens inside the operator in itself.
I have not spoken yet of the delay requested by the new British government to give its position on the project. Nevertheless, I understand their reluctance towards CGN's stake in it.
I would have the same if I were in their case. They intend to protect Great Britain's independence in the energy field and that's thoroughly understandable.
The choice of China as a stakeholder has been deliberately worked by Mr. Hollande government and is following one of the main axes of France's foreign policy, whatever is thought about it. I wonder if Great Britain would have shown the same reluctance if EDF's partner would have been a major from the US or Japan?

So feel free to post comments about the subject, stay calm and polite and so would I! I will be happy to answer (or try to answer) your questions and concerns or other points. The Hinkley very, very thorny Point TV series will get other episodes!