Complex CFD finances Hinkley Point C

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Some of the most complex financing structures in the world were put in place to pave the way for the development of Hinkley Point C (HPC), a headline-making Chinese-funded nuclear power investment project in the UK, said a lawyer involved in the project.

“The financial viability of HPC is underpinned by a contract-for-differences [CFD] structure, pursuant to which the UK government has agreed on a minimum price for the power that HPC generates so that if prices fall below that level, the project company will receive a top up, which will in effect be funded by all UK users of electricity,” Alex Doughty, a partner at Eversheds in London and one of the team leaders in the project, told China Business Law Journal.

complex-cfd-finances-hinkley-point-cDoughty said HPC is one of the world’s most complex project financings currently underway, and the challenging piece of work involves the development of innovative financing structures. The contract-for-differences will last for 35 years.

HPC, being built by France with major Chinese investment, will be constructed near the existing Hinkley Point B station, in Somerset, and is scheduled for completion in 2023. It is expected to provide 7% of the UK’s electricity needs and operate for 60 years.

“The CFD mechanism required a ‘state aid’ clearance from the EU Competition Department,” said Doughty. “With the entry of China General Nuclear Corporation [CGN] into HPC as a strategic long-term investor, China Development Bank [CDB] mobilized its team to support its longstanding client CGN … As the overall funding structure for HPC was further developed, CDB’s team was able to provide CGN with innovative and creative solutions to facilitate CGN’s invest into HPC.”

For example, Doughty said the financing structure included a complex multi-billion-pound structured credit instrument “which is both unique and innovative”.

“CDB will be continuing its support of CGN during the ongoing implementation of HPC and its financing structure,” he said. “As the first new nuclear power plant being implemented in the UK, HPC is currently one of the largest and most complex projects being implemented in Europe.”

Legal counsel: Eversheds advised a consortium of Chinese banks, led by CDB, on key aspects of the financing of the £16 billion (US$20 billion) HPC project. The Eversheds team was led by partners Alex Doughty in London, Jay Ze in Beijing, and Samuel Chau in Hong Kong.