Julia Pyke, Director of Finance Sizewell C

This is Rod Adams and his time for another atomic show. I have a guest named Julia Pike who was director of finance for size well-see project that should follow directly after Inkley C and take on the learnings from that project to build two EPRs. Welcome Julia. Very nice to be here Rod. And perhaps you could give a little bit of your background so the listeners can get to know you. I spent a lot of my career as a lawyer. I was ahead of power at Herbert Smith Free Hills. So I worked on all sorts of energy projects including wind, solar, gas, tidal lagoons and nuclear. I did a lot of the legal work for Inkley. And at the end of all of that process I realized the extraordinary contribution that nuclear can make to decarbonising and felt very passionately that we must do more of it. And so I moved over to work for size well-see itself to finance it and get it to the starting line and beyond so that we can have another 7% of electricity in the UK coming from a exceptionally low carbon source. And that's a terrific backstory. How much of the UK's power is provided by nuclear and what are the prospects for that look like in the next five or ten years? So the UK's had nuclear for a long time and it's been going along making round about 20% of our electricity. But a lot of the nuclear in the UK was built in the 70s and 80s. Their advanced gas-called reactors and they're coming to the end of their lives. So over this decade they will all shut down. The UK's got one pressurized water reactor at size well-be which will carry on we hope for another 25, 30 years or so. And then we're building Hinty Point C which is an EPR so a type of pressurized water reactor. That will provide another 7% and we want to build size well-see which will provide another 7% so it would be back up to 18. But the government has over the last couple of years become increasingly convinced that we need quite a lot of nuclear. So we are really optimistic about the prospects not just for our large gigawatt reactors but also for small modular, for advanced modular and in due course of course we all very much hope for fusion. So in the UK the prospects for nuclear are looking really good. What are some of the differences between the way that Hinty-see was financed and the way that you are working to get size well-see financed? So Hinty-see was financed under what's called a contract for difference which is the income model which has been used to finance in particular a lot of offshore wind and it's been very successful. And the issue with applying the contract for difference model to a nuclear power station is that because we have a very long build period. If we have an income model which doesn't pay anything until the station is on then you build up interest through your whole build period, your whole construction period. And the second thing that the contract for difference model does is it imposes almost all of the development risk on the developer. What we are looking at with the regulated asset based model which the government is legislating to create at the moment is a model which pays some low-ish level of interest and return during the construction period. So during the construction period UK consumers would start off by paying PENS per household per year. In this parliament when we know we have a cost of living crisis and we are acutely conscious of not increasing cost to consumers any more than is absolutely necessary. It would rise to around about £2 per household per year. At the end of construction it would be round about £1 per household per month. But then when it turns on it will bring the costs for consumers down considerably in comparison with any other decarbonised way of making electricity. So it is a low cost, great investment by people during the construction period for themselves and for their children and for their children for the whole operational period which is at least 60 years. The contract for difference model has provided the return that will encourage investors to have the appetite for the risk. And as I recall the projected rate of return to investors is somewhere in the 9 to 10% range. Is that correct? Yes, that's right. Yeah. Because it's a very long construction period with no income. Yeah, very long construction period at a high interest rate. Yes, at an interest rate which reflects the fact that it's sitting on a test balance sheet. That's what the interest rate does is it covers the risk of things happening because the developer doesn't necessarily have control over some of those things. And so we have to have some sort of means of paying for those additional costs. Now obviously if everything goes perfectly, the people who invested in that facility will walk off with an awful lot of return compared to an average investment with less risk. They would they would after a very very significant investment come away with a return. Yes, yes, but the investment into the UK of in Hinkley Point C is absolutely enormous. It's putting billions in the local economy. It's re-skilling whole areas like welding where the UK has a shortage of skilled workers. And so it's an absolutely enormous investment not just in creating some electricity but in re-skilling, new nuclear construction and actually benefiting construction of all sorts of other forms of green energy and indeed train lines other major construction at the same time. Sure, and then that investment will pay even greater returns if there's an immediate follow on that can use all of the the majority of the learnings that came from that project. Yes, the UK can benefit enormously by having a follow on project which we hope is size well see which can take those people who've been trained on Hinkley, give them a give them a future building, another power station using the same design, using a lot of the same key members of the supply chain. We've got really high UK content and we will be taking on at size well 1500 newer apprentices and employing thousands of people around the country both on the site in building the past station and across the country in manufacturing the equipment for the for the station. This is probably outside of yours scope of work but would it be even better returns or better for the UK if another project like size well see was to follow on maybe split the workforce it came from Hinkley and have them train an additional workforce. I mean I'm obviously a partial answer of that question broad so I of course think it would be a great thing to build a third UK EPR. Because exactly as you say you would have that benefit that we will see in size well we would have that again and absolutely that would be a still greater return to the UK from the investment in all of the skills and factories and training facilities that have been created for Hinkley based on the numbers you provided earlier. One more dual EPR plan would get you back up over 20% of your electricity coming from nuclear. Yes absolutely and then of course if we if we recognize that electricity demand in the UK is forecast at least to double and low carbon energy to probably more like quadruple as we stop burning fossil fuels. Then we can see that in order to maintain 20% of a growing need. There is a lot of room for a nuclear program not only of EPRs but possibly of other types of gig what reactor and of course of small modular and advanced modular as they develop since you've had a lot of experience in some of the other energy industries. Have you run into people who complain about the idea that nuclear investments crowd out the other sources of energy. People do say that I find it a strange argument really because we have a climate crisis and I personally am supportive of all technologies which can help us maintain a stable affordable electricity supply. and I think that's a great thing. I don't really understand why people see there as being a competition between different ways of making electricity. We absolutely recognize the huge progress that the offshore wind industry has made. That's a great thing. We think there's a role for all sorts of different technologies. We think there's a role for carbon capture news and storage. We see everybody really needed to work together to create the most affordable system using the assets that the UK has wherever possible. So I think that one of the ways we hope that people who are of that view about nuclear crowding out other ways of making electricity. We hope that we will make those people happier with size we'll see because we're going to put in vials to take out some of the heat before it hits the turbines so that there will be a greater degree to which the power station can reduce its electrical output and use the heat directly. So we're looking at technologies like, need to sisted hydrogen or heat powered data capture as well as, obviously, the provision of heat for industrial process or even for district heating. And we're also looking at the non grid uses of electricity. So people talk a lot about can the utility flexible can it load follow and the answer is of course, yes, it can be flexible and load follow French reactors do load follow you can see how the French system works. But a simpler way of achieving effective flexibility is to make sure that we have plenty of non grid uses for the electricity in particular putting electricity into making green hydrogen, which we would hope to do in Suffolk alongside the very high volume of offshore wind, which is which is neighboring to size well see. So the offshore wind does have a method or a infrastructure to come on shore near size well is that correct. Yes, that's right that's right you there's a lot of there's a lot of offshore wind and the size will be making round about 3% of the electricity. And we very much hope that we'll be seeing, well, see making it further 7%. So you have a lot of low carbon electricity in that area. So it's an ideal place to make green hydrogen. Are there plans to, I assume there are plans to increase the capacity of the grid in that area? And I asked that because one of the challenges that some US nuclear power plants have run into was they are in an area where a lot of wind capacity was built. But they didn't de-day the utility, didn't really upgrade the grid connection. So when the wind is blowing, there's congestion and the nuclear plant has to pay congestion fees to get its power to the grid. Yeah, I think that's a really good point. In the UK at the moment, generators have paid constraint payments when they're asked to turn down to turn off by the national grid. And nuclear is not often asked to turn down to turn off. But the system, as it develops to take more and more intermittent electricity, which in the UK is absolutely going to be the direction of travel. There is going to be a lot more intermittent generation on the system. Then the national grid is looking hard, as you imagine, around how best to balance this out. But future proofing the way the system works by making sure that we have the infrastructure to take the electricity into hydrogen electrolysis, for example, rather than waste the heat of the nuclear power station, is an important part of making sure that size well C is going to fit well into any future system as it's developed. I'm not familiar with the layout or the footprint of size well. Does it have a significant amount of space that would be able to be used for something like a hydrogen production facility? You could take advantage of both excess electricity from the nuclear plant and excess electricity from the nearby offshore wind farms. Yes. So we wouldn't contemplate building any hydrogen infrastructure immediately next to size well C, because size well C is on what is called the heritage coast. But absolutely, it's an area where there is plenty of capacity to run the electricity back a couple of miles to a more suitable area off the heritage coast and exactly as you say, rod take electricity both from wind farms and from nuclear. And then that actually optimizes the use of the lifecycle for the hydrogen electrolysis. So it's something which the hydrogen industry is very keen to see is the use of both wind and nuclear. Does nuclear generated hydrogen qualify as green hydrogen in the UK's definitions? So the UK is taking a very rational approach to a lot of these issues, including the taxonomy which will come on to. And the government has published in relation to hydrogen, a very sensible set of thoughts around classifying hydrogen by relation to its carbon intensity, rather than trying to get into a big debate about different colours of hydrogen depending on the electricity source. So the direction of travel is very positive. There are some subsidies which have been in existence for a long time, for which nuclear doesn't currently qualify and that's something which is being looked at at the moment to see whether or not at this point where you have nuclear and wind electricity next to each other and it's optimal for everybody that we make the most of both of the technologies that are looking at whether or not those old sub-sterier regimes can be made technology neutral. That'd be great. And I do like the description of the UK philosophy is rational and dependent on carbon intensity instead of an approved list of inputs with the approvals. authority being somewhat mysterious. Yes. Now, one of the things that I've noticed over years of observing, it seemed like there was a time when the offshore wind production in the UK experienced almost a step change in the down direction for cost of electricity. And can you help me recall what caused that step change to happen? So the offshore wind industry has both done a great job in terms of technically reducing its cost of construction and it's also had huge investment. And of course, the enormous German investment into the wind industry has helped the industry internationally. So that that has very significantly reduced the construction cost of offshore wind. And then as the financial community has got has got familiar and happy and I mean more than happy very very enthusiastic about investing in offshore wind, then the cost of the money to build the wind farms has also come down. And so just as for nuclear we hope to reduce the actual construction costs and the cost of finance. That's what the offshore wind industry has already achieved. But it's a very interesting point that you make about what's happening to household bills. One of the ways we look at size well see and we look at the cost of size well see is around household bill impact because of course that's what people care about. And because the component costs within the system, while of course everything within the system should be represent the best values for money that it can. What most matters to households is a household bill going to go up or to go down as a result of building a particular piece of generating capacity. So we are confident and more importantly the government is confident that while size well see itself will be more expensive than an equivalent for the cost of the cost of the cost of the cost of the cost of the cost of the cost of providing electricity for example in relation to wind when when is not windy relation to solar when it's not sunny etc. While size well see itself will be more expensive than an equivalent volume of offshore wind in terms of construction cost it will nonetheless bring household bills down when size well see is built in comparison with not building it because it's a lot cheaper to build size well see and have weather independent electricity. It will, nonetheless, bring household bills down when seismosy is built in comparison with not building it, because it's a lot cheaper to build seismosy and have weather independent electricity than it than it is to massively overbuild renewables and provide the storage which would be necessary to cope with lollards in the wind. So we're confident that there's a very positive story on cost for seismosy which is how households build come down. As I recall, what was the time when the offshore wind farm developers were responsible for the cost of moving their power into the grid and that required building a lot of individual connections? And at some point in the last five years or so, there was a decision made for the national grid to build infrastructure out to the wind farms and tell the wind farms they could connect there. Yes, that's right. There's a regime called the offshore transmission regime and that that's been an important part of the success of the offshore wind store. I don't know how that affected customer bills or not because it does take into account part of the cost for adding something that is distant from the current grid. I mean, size well is at least on land and near the grid connections. Yes, size well is, we're very fortunate that the grid connection was sized to take size well, see when size well be was built in the 1990s. So for size well, see the grid connection is already there and that is a big benefit. Is it visible to customers how the balance and costs and perhaps costs and storage and those kinds of costs associated with intermittency? Is that visible to customers or have they noticed a change in their bills? I don't think it is really visible. I mean, I suspect that one of the reasons it's not visible is that the more bills have moved online, the less people look. So, you know, if you have for example, if you if you if you if you have your electricity supply, I probably is a very helpful breakdown of what is your electricity bill made up and you can see in the bill wheel. There's a section called transmission cost and it's a section called distribution cost and obviously it's a section called generation costs and so on. And so you can see if you look, but it's not been a narrative which has really seized media or public attention which is what's the real impact on bills of particular decisions about the electricity mix. But I mean, I think because of the current cost of living crisis and of course, you know, things are going to probably get more difficult for us because of the as a nation because of the terrible news for the people of Ukraine. I think that I think that the way bills are really made up will come into increasingly sharp focus for people. I agree with that. One of the concerns I have is I think the way you described it once the nuclear plants come online, where what size will comes online, there will be a an increase of customer bills of a couple of pounds per month for the plant. But then other parts of their bills will show a decrease. Is that no, it's it's it's it because. the regulated asset base model. So for all regulated assets in the UK, water, electricity distribution and transmission airports, they they allow the regulated utility to charge a small amount of consumers in the construction period. So you don't get rolled up interest. So that is in the construction period, there'll be a small addition to bills, but in return when the plant turns on, there'll be a reduction in bills. Good. One of the things that happened in the US was the way our regulations worked. You couldn't pay for the plant until it was actually up and running in an operating asset. So every time a new nuclear plant came online during the time when we were building them, the first thing the utility did was to go to the public utility commission said, well, we've got the plant built now we need our rate increase. So customers were taught that completing a nuclear plant equaled a rate increase. Yeah, absolutely. I think I think the way that Newton is financed is as your saying rod, a really important way of increasing or decreasing public support. The other thing that many it's hard to to analyze and hard to predict, but having more non gas generation on the grid will have an effect, a positive for the consumer effect on natural gas prices because they're determined by the balance of supply and demand. And if there's more, more nuclear, there's less demand for gas. Yes, absolutely. And of course, energy security will be high up everybody's agenda at the moment. I mean, who could have predicted from maybe some people good, but obviously most of us didn't predict the current position with Russia and Ukraine even a month ago. And so I think energy security is a matter of increasing focus and rightly so. A nuclear is a course great for energy security. Yes, it's a new concept for many people having. been a career naval officer. It's not a new concept for me that people use energy as a means of controlling people. Yeah. And influencing their decisions, geopolitics is something that most people just don't pay much attention to. No. In your position as a director of finance, I'm sure you obviously are keenly tracking the regulated asset-based discussion, those kinds of things. Have you had discussions with financial sources? Is there interest in the financial community? Has it been affected by the EU taxonomy decisions? Yes. I think that here in the UK, there's been a combination of circumstances. So there's been some very positive signaling from the government, which is essential. There's been cross-party support. That's really important. So both the Conservative Party in government and the Labour Party, who are the majority of the opposition, have been openly in favour of the nuclear energy financing bill. And they've done what's called in the UK whipping for the bill, which sort of sounds rather odd, but involves obliging the terms of parliament to vote in favour. I'm seeing here. We have the term here in the US as well, but yeah. Adding, added to that, of course, we have seen some periods of very low wind speeds. And that's highlighted the dependence of the UK on gas when the wind's not blowing in particular. And then, of course, we now have the gas price crisis exacerbated by the events on the Russia-U-Crain border. And so I think that that in combination with what can nuclear offer to the investment community, so nuclear and the regulated asset-based model can offer very long-term CPI. That's one of our inflation measures, and it's the inflation measure to which an awful lot of pension funds are linked. So CPI linked returns. And of course, an awful lot of the people in the financial community are very, very interested in the social impact of their investments. And nuclear has fantastic social impact. We take in a princess and we turn out people running power stations. Stuart Crooksoose, the managing director of the Hinktapoint Sea Project, he started it. He started as an apprentice. And now he's running one of Europe's biggest construction projects, which will be one of, if not the UK's biggest contributions to fighting climate change. And that's not an uncommon story. That's a common story. So the nuclear industry takes people in, and it is leveling up in action. And then we have a huge number of British suppliers. So we have more than two and a half thousand British companies supplying to us. And we put a huge amount of money into the local area, which committed to put 4 billion into the regional economy of the South West near Hinktapoint. And we are committed to put 4 billion into the regional economy of the East of England around Suffolk. So these projects can really transform lives for good. And the financial community is very interested the power of good that its money can achieve and for size we'll see doing the power of good is our aim and our vision. So we do have a lot of interest from people. We are obviously not going to start hard marketing the project until we have got all of our consents. So we are waiting to see whether or not we are given our planning consent and our environmental consent. We need our nuclear site license and of course we need this nuclear energy financing bill which is currently passing through parliament. We need that to become the law. But when all of those things are in place later this year then we will start marketing the project and we do expect that to be a lot of interest. In the US we have this concept called the design certification which basically approves the physical design of the reactor and its supporting systems and then there is a process called the combined operating license process which goes through the operations of the plant for whoever the applicant is and the site. What is the situation for you as someone who is or as a company that is going to build another unit of a plant that is obviously gone through the regulation or the GDA's approval process? So it is very positive. One of the first discussions we had about SISW was with the Office for Nuclear Regulation. So as you say the design? Sorry it is ONA, not GDA sorry. ONR. Well you are right it is ONR runs the GDA where you are going to get into it. So the UKPR for Hintley has achieved generic design approval and that means that the technology is approved for building the UK and in getting and working through actually building something with generic design approval then the approved detailed design is built up all the way through to the detailed contractor method statements. So with SISW, the Office for Nuclear Regulation has been very supportive of us building a copy that this is the safest thing to do and they have written us a letter confirming that they are very supportive of our replicating the Hintley design. So that means that a huge amount of the work which was undertaken for Hintley simply doesn't need to be redone because we are going to do some work to make the ground conditions of Saffoque equivalent to the ground conditions of Somerset from a seismic perspective and then we are going to build identical above ground power station. It will pay dividends over many many decades to have several units of the same design. Absolutely. So it's a regular tour and just a planning and support idea. Absolutely and for the supply chain the parts will be exactly the same. It will enable an efficient approach to spares. It will enable people who have trained to operate Hintley Point C also to operate size well-see and obviously we hope that we would in due time be able to build a further reactor if that's what the equipment would like to happen. So that it enables people to build their careers and give them an optionality around progression from Hintley to size well, starting in size well, progressing into Hintley and so on. I'd like to offer you the opportunity to share any other thoughts that you might have on this exciting prospect of another pair of EPRs going up in the UK. Well I think my my final thought would be when I look at my kids I've got two sons at University and a teenage daughter and you know you hear all the news which is so gloomy for them about climate change and now of course about how about conflict in Russia Ukraine. You think well you know what is it that you can do to make the world a better place and I am sure that working to bring forward a large nuclear reactor and with all the social benefits it brings is the best thing that I can do to achieve a better world for them and so that really does motivate most people in the team it's what the team wants to do is to make the world a better place in this case through the medium of building a large nuclear power station. Wow that's a terrific ending I will try to join you or actually I have joined you in dedicating my life to try to make the world a better place through doing whatever I can to support nuclear energy. Including investing in nuclear. Well that is a very good thing to hear. Alright Julia thank you very much for your time I hope you have a wonderful day. Thank you thank you. You've been listening to episode number 296 of the Atomic Show. I'm your host Rod Adams my guest today was Julia Pike the director of finance for size well-see a nuclear development project in the UK. If you enjoyed the show please leave a review on your favorite podcast app. If you want to make comments or to engage in discussion about the show please visit atomicinsights.com and look for our show number 296. If you are interested in investing in advanced nuclear please contact me Rod at nucleationcapital.com Today we're making boys tell the world there's a better way today there's a better way there's a way such a better way today today now reach you boys tell the world there's a better way today there's a better way