EDF seeks to activate contingency clause for Hinkley Point C contract

Energy giant EDF is looking to activate a contingency option in its contract with the government, which could allow it to potentially avoid penalties related to delays to the Hinkley Point C nuclear power station project as a result of the Covid-19 pandemic.

The firm has notified the government-owned Low Carbon Contracts Company (LCCC) over a “force majeure” event, brought on by Covid-19. The notification, which is understood to be under discussion with the government, means that EDF may, if necessary, be able to avoid penalties if Hinkley doesn’t deliver electricity to the national grid on a pre-agreed date.

EDF has insisted, however, that the current target date of 1 June 2027 for delivery of electricity from reactor one at Hinkley remains in place.

According to the Financial Times, Hinkley Point C’s managing director, Stuart Crooks, has approached the LCCC, which administers energy agreements on behalf of the government, to activate the contingency and notify the body of the event – something it is contractually obliged to do.

The contract between LCCC and Hinkley includes undisclosed penalties related to the delivery date of the reactor. The exact cost of those penalties has not been made public and is considered commercially sensitive.

However, Crooks reportedly said that Covid-19 had “added a year” to the construction schedule and should be considered a “force majeure”. In contractual terms, this typically refers to an event that is beyond the control of the parties under agreement.

The financing model used to pay for the development of Hinkley Point C is known as a Contract for Difference (CfD).  The developer funds the cost of building the nuclear power station in return for an agreed-upon fixed price for the electricity generated when the plant is operational.

The consumers end up paying the difference between the wholesale price of electricity and the fixed price, and fund the project once it is in the operational phase. The subsidy deal with the government guarantees EDF a price of £92.50 for every megawatt hour of electricity it produces, for the first 35 years of the reactor’s life. This price is subsidised by the government.

EDF announced in May that the project costs had increased by £3bn. This was attributed in part to the loss of 500,000 individual workdays solely in civil construction. Furthermore, 180 suppliers were shut until earlier this year, with 60 of those still operating at reduced capacity.