25 July 2016

Case study: Hinkley Point C - it’s about the long game

In late 2015, a cross-border KWM team helped China General Nuclear Power Corporation (CGN) to complete its landmark £6 billion investment in Hinkley Point C plant in Somerset, the UK’s first nuclear power station in 20 years. Under a Strategic Investment Agreement with French energy company EDF Group, CGN acquired a 33.5% stake in Hinkley, which would enable it to also develop two additional nuclear power stations at Sizewell in Suffolk and Bradwell in Essex.

The deal was interesting from a number of perspectives.

1. Playing the long game

By taking equity stakes in each of the three new nuclear power plants being built by EDF in the UK, CGN made its ambitions on the world nuclear stage clear: not only did they want to invest in nuclear outside of China, but also, and more tellingly, CGN wanted their technology, their expertise and their supply chain to be deployed outside of China. The headlines told of CGN’s £6 billion investment in the EDF programme, however what was more significant (certainly from the Chinese perspective) was CGN’s intention to:

  • ƒseek generic design assessment (GDA) approval for their Hualong nuclear reactor technology in the UK; 
  • ƒdeploy it at Bradwell (the third site to be built by EDF in the UK after Hinkley and Sizewell); and ƒ
  • use that approval as a “springboard” to deploying the technology elsewhere in the ever-expanding nuclear energy world.

UK GDA approval is perceived as industry standard and a baseline for other jurisdictions’ regulatory approval processes. South Africa, Poland, Egypt, Hungary, Jordan and Saudi Arabia – to name some of the nations looking to expand their nuclear capability – have all looked to the UK GDA as a basis for assessing the third-generation nuclear technology to be deployed in their jurisdictions in the near future.

China is the most prolific builder of new nuclear power plants anywhere in the world. Their domestic nuclear new-build projects have not been beset by the same programme and budgeting issues that have troubled EDF and Areva. Notwithstanding some delays when contrasted with Flammanville and Olkiluotu, China also has a very good story to tell when selling its technology and new-build skills abroad.

So the “Hinkley C investment” is about much more than providing cash- strapped EDF with much needed 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.

2. Regulatory hurdles

Securing merger clearance for the JV with EDF revealed, once again, that the regulators took into account not only the Chinese SOE directly involved in the transaction – CGN – but also the turnover, activities and market share of other Chinese SOEs.

In due course, CGN will need to seek GDA approval for their Hualong technology, which will require an interface with the Office for Nuclear Regulation. Applications for Infrastructure Planning Consent, environmental discharge permits, and Development Consent Orders regarding Bradwell, will bring them into contact with further regulators, part of the journey to secure all necessary regulatory approvals for the construction of a new nuclear power plant using their technology. It remains to be seen how CGN will fare, but our experience of those regulators leads us to anticipate a fair but firm approach to those applications – as they would with any such applicant.

AQ China Outbound Case Study: Hinkley Point C
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Chinese Outbound Investment 2016

In our second Chinese Outbound Investment report, we analyse trends and delve into several significant policy developments that have – and will continue to – impact on offshore investment.

More importantly, this report looks to the future of Chinese outbound investment.

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