Yahoo Finance EDF boss admits he must stay humble about the Hinkley challenges ahead
"I find Britain to be very civilised,” smiles Simone Rossi. The new chief executive officer of EDF Energy is already known within the Big Six energy giant for a laid-back warmth that belies his steely grip on the company’s finances and Britain’s most ambitious national infrastructure projects.
“I grew up in Italy. It’s not a country known for its governance,” he shrugs, good-naturedly. “Here, people say what they mean, and mean what they say. The standards of civil servants is very high. I’m very excited about the market in which we’re operating.”
Rossi is a rarity: a chief financial officer who has made the move to CEO, an Italian who now leads the UK business of a French company. He is also preparing to shake up what we think we know about Britain’s new nuclear renaissance.
Rossi steps into the shoes of energy industry veteran Vincent De Rivaz, who retired following 12 years at the helm of EDF last year after securing a historic deal with the Government to build Britain’s first new nuclear power plant in a generation.
“It’s a big responsibility. There’s a bit of trepidation,” he says. “But at the same time, it was a very good transition. I have a lot of time for Vincent and what he has done.”
But if his predecessor bore a philosophical weariness after years battling towards a financial deal for Hinkley Point C, Rossi appears energised by the opportunity to reap the benefits of EDF’s Herculean efforts.
The Hinkley deal took more than a decade for EDF to agree with the Government and its Chinese projects partners at CGN. It will cost energy consumers around £50bn by guaranteeing EDF a price of £92.50 for every megawatt-hour (MWh) of energy produced. “The most difficult part of Hinkley Point C was getting across the finish line – but actually, it’s the start line,” he says.
The Sizewell C project, planned for East Anglia, will build on the Hinkley experience. It is the project that Rossi believes will cast off the shackles of doubt that have held back the UK’s new nuclear ambitions over the past decade. In his first public outing as EDF Energy’s boss last week, Rossi revealed his plans for 2018: to secure an “innovative new financing model” for the group’s follow-up to the £20bn Hinkley Point project at Sizewell. He also claims he will do it while cutting the cost shouldered by energy-bill payers by 20pc.
It is a bold claim, which suggests a step change in Britain’s nuclear narrative. For the past decade, the Government’s ambition to bring forward investment in up to 16GW of new nuclear power capacity has been dogged by concerns over the technology’s eye-watering costs and potentially crippling risks.
EDF has always maintained nuclear costs are a price worth paying for clean, reliable energy. However, by sounding his intention to slash costs to compete with renewable power, Rossi is turning preconceptions on their head. The accepted wisdom is that the cost of nuclear reactors is too high to compete with renewable energy alternatives, and that a decades-old industry is already too mature to bring costs down. Rossi admits that the cost of Sizewell C will not be able to fall at the same breakneck trajectory as offshore wind. For these giant turbine projects – which EDF is building too – costs have more than halved to less than £58 per MWh hour in recent auctions.
But he insists nuclear power costs will drop, and will compete with wind power on a level playing field. EDF estimates that the hidden cost of supporting wind power can add between £15 to £20 per MWh to their headline figures through the extra payments needed to back up wind farms when the wind drops, or pay developers to shut down their turbines when there is more wind power than the country needs. EDF therefore needs to cut costs down at least to £80 per MWh to prove it can compete with wind power at today’s rates. Rossi is clear that nuclear needs to be competitive at future prices, too, so even bigger savings are necessary.
“If Sizewell is not able to be competitive with the equivalent energy alternatives, there will be no project. Sizewell has to be competitive with the equivalent alternatives,” he repeats, carefully punctuating each point with a gentle knock of his knuckles on the desk.
This is not the first bold claim made by EDF Energy. Ten years ago the group said Hinkley would begin generating power “well before 2020” at a cost of just £6bn. Rossi will no doubt hope to avoid shackling his tenure with broken promises, and is confident that his claims will be justified in time.
Rossi says the high cost of Hinkley is an inevitable one-off, which will prove the test bed for investors and justify nuclear’s place in the energy mix. The future of affordable new nuclear relies on two main levers: building on the technical learnings and supply chain efficiencies developed during the Hinkley construction phase, and slashing the cost of capital by bringing institutional investors such as pension funds to the table.
“There is a lot of money out there seeking opportunities for investment,” he says. “We have met with several financial institutions, not just pension funds, and they have a strong appetite. These assets, once they are up and running, really fit very well in the investment strategies and portfolios of these investors. We are working for the time being to see if we can create a solution that works,” he explains.
This requires a return to the negotiating rooms within Whitehall to work with the Government to create a financing structure to allow third-party investors to take a stake in the project. The model that will emerge could be similar to other major infrastructure projects, Rossi says. Front of mind for City investors could be the multibillion-pound Thames Tideway project to overhaul London’s Victoria sewer system. Bazalgette Tunnel Limited, a special-purpose company, was set up by a consortium of investors, including funds managed by Allianz, Amber Infrastructure Group, Dalmore Capital and DIF, to own, finance and deliver the project.
Rossi avoids any outright description of the framework he hopes to create, or the extent to which the Government may need to support the early construction risk of the project.
Ultimately his plan relies on proving that an infrastructure undertaking as vast and complex as Hinkley can be delivered on time and on budget.
The Hinkley Point C site will one day host two EPR reactors and generate enough low-carbon electricity to power 16 m homes every year. Today, the 435-acre construction site is littered with yellow diggers, which to date have excavated four million tonnes of earth. Three concrete batching plants have produced more than 90,000 cubic metres of concrete. By the end of year, more than 50 cranes will loom over the 3,000 workers who are on site every day, clocking one million worker hours every month.
The construction process is in its infancy but Rossi says it is “encouraging” that all milestones have been met so far. The aim is to begin powering homes and businesses from Hinkley Point C by 2025, and Rossi is confident it will.
“Certainly, our plan is ambitious. But we have every reason to be confident,” he says. “EDF has done a thorough review of the project. We’ve highlighted some extra costs, and some risk that the project may be delayed by up to a year. But this hasn’t led us to change the target,” he adds.
There is little room for complacency, though. Rossi is unlikely to escape the legacy of his predecessor’s early promise that Hinkley would help cook British turkeys by Christmas 2017.
“We need to be humble. We have to recognise that projects of this scale and magnitude will present challenges even if we’ve done all the homework, and drawn on all the past lessons, and we’ve got all the tools … other things can happen,” he says.
EDF’s beleaguered first attempt to use its next-generation reactor design at the Flamanville nuclear project in France is €7bn (£6.2bn) over budget and expected to be six years late.
Rossi insists Hinkley will not face the same fate. “We will have to react, be prepared, have contingency plans for everything,” he says. “From what we’ve seen so far, the project is being run like a Swiss clock.”
Perhaps it takes an Italian in England to lead a French project with the precision of the Swiss?
“And don’t forget the Chinese!” he laughs. “We’re very international. It’s an encouraging start.”
