The week ahead: Nuclear deal announced amid good news for construction

News editor

The deal to build the Hinkley C nuclear power station has finally been announced, as the construction sector begins to emerge from its worst recession in 35 years

By 2023 the UK will have a new electricity generating plant capable of providing seven per cent of the nation’s energy needs when running at full capacity.

This is one of many claims being made today by DECC, which has formally announced an agreement between government and EDF on the commercial terms of the proposed investment contract that will see a new nuclear plant built at Hinkley Point in Somerset, a move that puts the west country plant at the vanguard of new nuclear in Britain.

This is, of course, good news when taken from the perspective of a national requirement for a reliable, low-carbon form of generating electricity.

Furthermore, DECC anticipates UK companies being able to take a 57 per cent share of the work to build the plant with around 25,000 jobs created during construction; 5,600 employed on site at peak of construction, and 900 permanent jobs created over 60 years of expected operation. Terms of the contracts for the four most important suppliers to the project – Bouygues TP/Laing O’Rourke (civil work contract), Costain (marine work), Alstom (turbines), and Areva – have now been finalised subject to a final investment decision.

Reassurances have been given that EDF and fellow investors (Areva, China General Nuclear Corporation (CGN), and China National Nuclear Corporation (CNNC)) will fund the £16bn project and that the station operator will take on responsibility for decommissioning and waste management costs.

UK consumers will start picking up costs from 2023 based on the strike price agreed between the parties that guarantees EDF Group £92.50/MWh, or £89.50/MWh if a new plant is built at Sizewell C. If wholesale prices rise above the agreed strike price, consumers will not pay extra. If they fall below this price the generator will receive a top-up payment.

These guarantees are widely acknowledged as being twice the market price and, in the words of today’s City AM, consumers are going to get hammered.

On the plus side, Scot Parkhurst, UK energy sector director at consultancy WSP believes today’s decision will help safeguard ‘specialist skills across the construction sector that have been sitting dormant for too long.’

A similarly upbeat tone came from Dr Tim Fox, head of energy and environment at the Institution of Mechanical Engineers, who said, ‘This announcement is a welcome step towards giving the UK nuclear engineering and research community confidence that the nation has a future in this sector and should act as a catalyst for encouraging the other consortia, Horizon Nuclear Power and NuGen, to continue with the plans for new plant at Wylfa, Oldbury and Moorside among others.’

Gareth Stace, EEF’s head of climate & environment policy, added, ‘The focus in the coming weeks must now be on the competitiveness of electricity prices and the need to avoid cost increases that are out of line with our competitors.

‘The UK also needs to be able to show that the transition to a low carbon economy can be beneficial for both the economy and the environment. Government must now build on this by ensuring that UK companies in the nuclear supply chain get the amount of work to which EDF has committed.

The commercial agreement reached today is not legally binding, and is dependent on a positive decision from the European Commission in relation to State Aid.

Nuclear new build will certainly be a boon for the nation’s construction industry, which appears to be on an upward trajectory.

Analysis from the Construction Products Association suggests that the industry is emerging from its worst recession in over 35 years with growth predicted for the next four years.

The industry, worth £111bn, is expected to grow by 19 per cent by 2017, an upward revision from the summer based on an increase in activity that is predicated to boost UK GDP by an additional £20bn.

This upbeat assessment is driven by private housing and infrastructure, which Noble Francis, economics director of the Construction Products Association says is showing a ‘more gradual return to positive territory.’

In a statement Francis said, ‘The infrastructure sector is recovering from a very difficult 2012, when output fell 12.7 per cent despite numerous government announcements of ‘boosts’ to the sector. Government now appears, however, to be refocusing capital investment towards repairs and renewals. In addition, work on Europe’s largest construction project, Crossrail, is expected to peak over the next 18 months. As a result, growth of 7.4 per cent is forecast in 2014

‘In the longer-term, the prospects for infrastructure will be reliant upon investment in the replacement of energy capacity across nuclear, offshore wind, gas and shale, all of which remain uncertain. Driven by this investment, we predict the sector will enjoy further growth of 27.9 per cent between 2015 and 2017.’

Key points in the Forecasts include:

• Construction output growth of 2.7 per cent in 2014 and 4.6 per cent in 2015

• Private housing starts to rise 19 per cent in 2013 and 15 per cent in 2014

• Public education to fall 14 per cent this year

• Rail infrastructure to rise 34 per cent by 2017

• Energy infrastructure to rise 99 per cent by 2017

• Public sector education and health projects to fall 11 per cent in 2013 and 2.4 per cent in 2014

The TUC concurs that the recovery is taking hold but maintains a caveat that it has to follow a low carbon path, and this is a subject of conference taking place in London today.

According to publicity material the TUC’s climate change conference – Green Growth: No Turning Back – is predicated on the belief that ‘the need to secure a green economic future has never been greater… it is more important than ever that the new economy we seek to create follows a low carbon path, where we maximise opportunities for green growth while addressing the urgent challenge of climate change.’

Speakers include Edward Davey, secretary of state for energy and climate change, Ian Wright, shadow minister for competitiveness and enterprise, and Prof Julia Slingo, chief scientist at the Met Office.

Four sessions take place in the afternoon, with one asking if the UK is falling behind in the ‘green technologies’ arena, what difference could new green technologies make – and – pertinently – why do we need them? Another will look at expert opinions on what low carbon policy should look like.

Leeds University’s Prof John Barrett will warn this week that around a quarter of all global greenhouse gas emissions are being exported through trade and are not being captured within global climate policy.

Prof Barrett will present the findings of his latest research – funded by the UK Energy Research Centre (UKERC) – alongside Tim Yeo MP at the All Party Parliamentary Climate Change Group tomorrow.

In a statement, Prof Barrett said, ‘Emissions embodied in trade are rapidly increasing and there is a growing gap between production emissions and those associated with consumption.’

The rise of ‘consumption-based’ emissions is a growing concern due to the absence of a global cap, as well as fragmented polices and significant variation in country-level mitigation ambitions.

Prof Barrett, however, believes that ‘robust measurements of consumption-based emissions are possible and could provide new insights into policy options for reducing greenhouse gas emissions.’

The development of shale gas in the UK is on the agenda tomorrow when the House of Lords Economic Affairs Committee hears evidence from senior representatives of Friends of the Earth, Greenpeace UK, and WWF-UK.

The committee will ask Craig Bennett, director of policy and campaigns, Friends of the Earth; Dr Doug Parr, chief scientist and policy director, Greenpeace UK; and Nick Molho, head of policy (Climate & Energy), WWF-UK, about the possible physical and environmental risks presented by shale gas and oil extraction in the UK and what impact increased use of shale gas and oil might have on UK emissions targets.

The committee is scheduled also to take evidence from Prof Richard Muller, Professor of Physics at the University of California, who will present his views on the prospects for shale gas and oil extraction in Britain.