UK okays EDF’s £18bn N-power project

Bloomberg

The U.K. government has approved Electricite de France SA’s controversial plan to build two nuclear reactors for 18 billion pounds ($24 billion) in southwest England.
Hinkley Point C will proceed under the condition that EDF won’t be able to sell down its controlling stake prior to completion of construction without government approval, the Department for Business, Energy and Industrial Strategy said in a statement Thursday. The much-criticized guaranteed electricity price that underpins the development wasn’t changed.
U.K. Prime Minister Theresa May decided to review Hinkley Point at the end of July, casting doubt on a project approved by her predecessor David Cameron as a way of reducing greenhouse gas emissions. The unexpected delay came amid concerns about the scale of potential subsidy for the plants and whether Chinese involvement was a security risk. While EDF says the development is vital for the future of the French nuclear industry, there are still concerns about the financial strain it will place on the utility.
“Britain needs to upgrade its supplies of energy, and we have always been clear that nuclear is an important part of ensuring our future low-carbon energy security,” Secretary of State for Business, Energy and Industrial Strategy Greg Clark said in the statement. “Having thoroughly reviewed the proposal for Hinkley Point C, we will introduce a series of measures to enhance security,” and therefore decided to proceed, he said.
Strategic Investment
The approval crowns almost a decade of efforts by EDF to prepare for the replacement of its U.K. nuclear fleet, acquired when it took control of British Energy Plc in 2008. Jean-Bernard Levy, chief executive officer of the state-controlled utility, has said Hinkley Point is key to ensuring the health of the French nuclear industry and providing work for struggling nuclear group Areva SA.
“This decision demonstrates confidence in the EPR technology and in the world-renowned expertise of the French nuclear industry,” Levy said in a statement Thursday.
The U.K. government will guarantee EDF can sell power generated by the plant at more than double current market prices for as long as 35 years. Nevertheless, the huge upfront cost of the development has provoked internal opposition, with Chief Financial Officer Thomas Piquemal resigning in March saying the plant would strain the utility’s finances. Under pressure from the French government, EDF has also agreed to take control of the nuclear-reactor business of Areva, which has been hurt by delays and cost overruns at an atomic plant in Finland.
EDF’s labor unions wanted the U.K. project to be delayed by about three years to benefit from feedback from reactors being built in France, Finland and China. At Flamanville in France, where the utility is building a reactor of the same design proposed for Hinkley Point, costs have more than tripled to 10.5 billion euros ($11.8 billion) and construction is six years behind
schedule.
EDF shares fell 0.2 percent to 11.17 euros at 10:20 a.m. Paris time. Rating companies have said a decision to proceed with Hinkley Point will probably trigger a credit downgrade for the company.

Chinese Role
The project also is of strategic importance for China. State-owned China General Nuclear Power Corp., which is due to provide a third of the finance for Hinkley Point, intends to take a minority stake in a similar nuclear reactor at Sizewell, and then a majority holding in another at Bradwell, which will use Chinese technology. A blog post written last year by Prime Minister May’s new chief of staff exposed concerns about U.K. energy security and cast a shadow over British-Chinese relations. Nick Timothy warned the involvement of Chinese partners in the development could allow them to “shut down Britain’s energy production at will.”
Existing powers plus a new legal framework for investment in critical U.K. infrastructure will mean “the full implications of foreign ownership are scrutinized for the purposes of national security,” according to the Department for Business, Energy and Industrial Strategy statement.
Government Intervention
“After Hinkley, the British government will take a special share in all future nuclear new build projects,” according to the statement. “This will ensure that significant stakes cannot be sold without the government’s knowledge or consent.”
The British government will also be able to intervene if EDF tries to sell its stake once Hinkley is operational, according to the statement.
The plant, which will take almost 10 years to construct, will provide a 9 percent annual return if built on time and on budget, according to Levy. The U.K. National Audit Office estimated in July that consumer-funded top-ups over the subsidies’ 35-year lifetime may total almost 30 billion pounds, after Cameron’s government agreed in 2013 to pay EDF 92.50 pounds a megawatt-hour for electricity from Hinkley. That price remains unchanged in the new terms announced Thursday, although the contract has not yet been signed, said a government spokesman.
“In light of a changing energy landscape, the falling cost of renewables, and lower financing costs, we are not convinced that this would be the right decision for the U.K. consumer,” Martin Young, an analyst at RBC Capital Markets in London, said in a note Thursday. For EDF, a 9 percent rate of return “is attractive, but will come at the price of multiyear construction risk.”
Hinkley Point C will provide 7 percent of Britain’s electricity needs for 60 years, the government said. The U.K. has eight power stations with 15 nuclear reactors which generate around 20 percent of electricity in the country, and almost all of these existing plants are due to close by 2030.