This article was first published in the Practical Law Constuction Blog
On 29 September 2016, at a private low-key ceremony in London, representatives from three of the world’s most powerful nations (France, China and the UK) met in order to sign a historic energy agreement. The goal: to build Britain’s first nuclear power plant in a generation. When completed in 2025 (if all goes to plan), Hinkley Point C will join two existing Somerset plants (Hinkley Points A and B) with a view to single-handedly supplying 7% of the UK’s energy needs. By that time, almost all of the eight currently-operating nuclear power stations (which together supply 20% of present-day demand) will be either closed or slated for decommissioning.
A high-yield project
While these numbers provide a glimpse of the scale of this ambitious project, they hardly do it justice. At its peak, the Hinkley Point construction site will be the largest in Europe. Some 5,600 workers will be required to move 5.6 million cubic metres of earth, install 230,000 tonnes of steel and lay 4,000 km of electrical cabling in order to bring power to 5.8 million homes. The price tag: a cool £18 billion.
But as impressive as these numbers may be, of equal interest are the myriad repercussions the project will have throughout the construction industry. While a project of this scale is bound to present significant technical challenges once underway, it is already presenting unexpected legal ones. For starters, despite years of planning, it seemed as recently as July of this year, that the entire project might be nixed following the appointment of Theresa May as Prime Minister, when she unexpectedly raised concerns about national security and escalating costs. Following last-minute measures put into place by Greg Clark, the new Business Secretary, to tighten government control over the project, it received final approval in mid-September before contracts were signed at the end of the month. What these measures are, why they’re necessary and what they mean in a post-Brexit world warrant closer attention.
Better the devil you don’t know?
It was widely speculated that Theresa May’s most recent halt to construction would prove an irremediable snub to the Chinese government, whose CGN Power Group had committed one-third of the £18 billion cost of construction. The delay was prompted by national security concerns arising from foreign investment in major infrastructural projects, leading one senior MP to describe our Asian partner as “people with whom we should sup with a long spoon”. In response, Liu Xiaoming, the Chinese ambassador to the UK, referred to the move as a “test of mutual trust” between the countries.
Still, the Chinese and EDF, the state-owned French energy giant, remained committed to the project, dedication that appears to have paid off (literally). This seems particularly true in the case of China, which sees Hinkley approval as a stepping stone for its larger nuclear ambitions in circumstances where it is already the world leader in nuclear power plant construction. According to King & Wood Mallesons, an international law firm that had advised CGN during the Hinkley deal:
“Hinkley C investment is about much more than providing… capital. It is about the long game: deploying Chinese technology, applying Chinese expertise, and ultimately having the Chinese supply chain build new nuclear power plants in the UK and many other jurisdictions.”
This analysis seems unassailable considering CGN’s press release upon the Hinkley project going ahead:
“We are now able to move forward and deliver much-needed nuclear capacity at Hinkley Point, Sizewell and Bradwell with our strategic partners.”
Such eagerness on the part of CGN makes all the more sense considering that the Hinkley deal involved awarding it a stake in a new development at Sizewell and prospective permission to build new reactors in Essex.
The UK construction industry has widely hailed the Hinkley deal as a shot in the arm for British business following the recent downturn in growth. According to Brian Rye, acting general secretary of the construction union UCATT:
“[t]he go-ahead was vital for construction, which desperately needed the confirmation of such a major project following a slowdown in the industry caused by the Brexit vote.”
Such praise should come as little surprise in light of figures showing that the project will create up to 25,000 jobs, with over a fifth of those being construction-related. Moreover, despite huge foreign investment in the costs of construction, it is expected that 60% of construction-related profits will accrue to UK employers and contractors.
As with any undertaking of this size, it is not without its critics. Greenpeace, despite its vocal activism for alternative energy sources, has denounced government backing on the basis that the wholesale price of megawatt hours originally forecast in 2013 was excessively optimistic. Because the contract agreed between the parties entitles EDF to a guaranteed minimum profit per megawatt hour, the National Audit Office now estimates that the shortfall (which would be borne by taxpayers) could range anywhere from £6 billion to a staggering £30 billion.
Still, perhaps the largest concern surrounding Hinkley was national security and the extent to which it would be compromised if foreign-owned companies were given the opportunity to not only construct major infrastructural projects in the UK using their own technology, but manage them for years to come. In light of fears that a souring of Franco- or Sino-UK relations could result in millions of British homes being crippled by power outages (if not worse), a new legal framework was introduced in order to better manage (at least from our perspective) such risks. The restrictions imposed by the new business secretary include that:
- The Government will have a veto over any attempt by EDF (or any future foreign-owned controller of a UK-based power plant) to sell its stake in Hinkley prior to completion and that certain constraints will remain even after completion.
- All future nuclear energy-related projects will require government oversight (if not significant control) regardless of the nationality of investing parties.
- The Office for Nuclear Regulation will require advance notice of any proposed change in ownership or management of nuclear power plants (which itself will be subject to government approval).
- The public interest regime under the Enterprise Act 2002 is to be reconsidered with a view to expanding the government’s ability to intervene in the sale and/or management of power stations whenever in the national interest to do so.
Some final thoughts
The full ramifications of Hinkley C will not be known for years, perhaps decades. Nevertheless, government approval for this long-awaited (and continually delayed) project is a distinct signal of at least a few things to come:
- That, despite widespread fears about a slump in available investment for large-scale construction in the wake of Brexit, the industry remains resilient.
- This resilience extends not only to providing the necessary expertise and manpower for such a venture, but also the political goodwill to collaborate with foreign investors, both private and public. Of course, whether this goodwill will translate into some form of participation in the EU single market (in return for free movement of goods and services, the so-called “soft Brexit”) or not remains to be seen.
- Perhaps of greatest relevance to construction lawyers are the inevitable challenges, disputes and opportunities that will arise from the first nuclear power station since Sizewell B became operational in 1995. These will emerge not only from the highly specialist nature of nuclear technology, but also the public law and policy issues associated with foreign investment and control over major domestic infrastructure projects.
Whatever future uncertainties surround this monumental undertaking, one thing appears clear: Britain’s construction sector remains open for business.