Julia Pyke: Sizewell C has been ‘heavily de-risked’ for pension funds

Newspaper reports claiming that various UK pension funds will not be investing in Sizewell C barely ruffle the feathers of Julia Pyke. She is joint managing director of the £20bn (€23.3bn) nuclear power project on the Suffolk coast of England, responsible for financing and overseeing wider development functions including legal and external affairs.

Pyke’s confidence that Sizewell C will receive both the public and private funding it needs is based on facts. The UK government and EDF have picked six investors to progress to the second round of bidding for the £6bn equity stake in the project. 

“UK institutional investors are already interested and are part of the bidding process,” she says, although she stops short of naming any names due to non-disclosure agreements. 

Earlier this month, IPE Real assets revealed that the UK’s Universities Superannuation Scheme, fund managers Schroders Greencoat, Equitix and Amber Infrastructure were all weighing up final bids. All four declined to comment.

The other bidders through to the second stage are ENEC, which is owned by Abu Dhabi sovereign wealth fund ADQ, and Centrica. Final bids for equity stakes in the 3.2GW project are expected to be tabled by the end of June, the sources added. The bidders have been asked to make offers according to the level of investment return they would like, among other factors.

With such institutional names in the line-up, Pyke can perhaps afford to be quietly confident that Sizewell C’s efforts to raise around £6bn in private financing for the 3.2 gigawatt Sizewell C reactor will be successful.

Sizewell C is being built under the regulated asset based or RAB model, which allows investors to receive returns before large infrastructure projects have been completed. It does this by placing a small levy on customers’ bills on the basis that they will benefit from cheaper electricity once the new nuclear power station is operational.

The government recently made a few tweaks to Sizewell C’s RAB model to make it more attractive to investors and to protect consumers from cost overruns. These include changes to the delay-weighted cost of capital mechanism to allow a two-year grace period after which penalties would increase incrementally. This would mean that shorter delays would be penalised at lesser levels if Sizewell C is delivered late.

Pyke says she has been able to give investors reassurances around Sizewell C’s cost of construction and its completion date because it is a copy of Hinkley C – meaning that the issues that had to be surmounted at the North Somerset project are less likely to be repeated at Sizewell C.

She believes that, despite the projected £20bn cost and 10-year construction period, pension funds will be attracted by Sizewell C’s risk-return profile which is “very different” to other nuclear reactors that have been built in the UK.

“What may be of interest to pension funds is that there’s expected to be a 6% yield through the construction stage of Sizewell C,” she says. “And there’s likely to be double-digit, inflation-protected yield for much of its life, and it’s an exceptionally long-running exceptionally well inflation-linked asset.”

The guarantee of a yield during the construction phase is “the game changer”, Pyke says. “You can’t attract institutional capital if they are locked into the construction period without it. I think the deliberations on the yield will be the single most significant decision that’s going to be made because the long-term return is going to be set in this competitive process.”

She adds that “what is really useful for pension funds is that the project has been heavily de-risked”.

Pyke says Sizewell C is the first major infrastructure project in the UK where the regulator has given the go-ahead to almost a carbon copy of another project, in this case Hinckley C. She explains: “EDF brought its European design to the UK and it had to make 7,000 design changes to comply with UK regulations. As Sizewell C is a copy, we have only had to make 57 design changes which are specific to a bigger different site. So that means that when we issue our cost estimate and timing schedule we have very detailed knowledge of what we are buying and of the supply chain. This is transformational.”

One of the stumbling blocks for UK investors is the sheer size of the commitment they need to make to invest in nuclear. However, sources told IPE Real Assets that bidders are now able to join forces to form a consortium, which may ease the financial pain.

Another point to consider is that the UK government will likely want to eventually sell down its stake in Sizewell C. Pyke says: “What I’d say for pension funds is that probably the government will be minded to sell out further tranches over time. So even if they don’t want to get involved today, there will be opportunities in the future.

“There’s also a programme of small modular reactors which will also need to be financed. So we will want to be talking to institutional investors so that they get comfortable with nuclear energy and see it as a good thing that reduces carbon emissions and brings down the cost of electricity bills.”

Sizewell C is expected to generate around 7% of the UK’s power needs via two reactor units adjacent to the existing 1.2 GW Sizewell B plant, which has been operational since 1995 and is due to be decommissioned by 2035, although EDF is seeking an extension to 2055. Sizewell A was built in the 1960s and is being decommissioned after it was shut down in 2006.

The government started looking for external investors last September after it agreed to invest £700m in November 2022 to take a 50% stake in the scheme, including buying out China General Nuclear’s 20%.

So far, the government has invested £511m to continue the project’s development and has promised to contribute an additional £1.3bn for the construction of Sizewell C.

IPE contacted the Department for Energy Security and Net Zero, ENEC, and Centrica, but no one was available to comment. EDF declined to comment.