UK to review Hinkley after EDF board approves project

29 July 2016

Electricite de France’s (EDF’s) board on 28 July approved the GBP18bn ($24bn) project to build the new Hinkley Point C NPP in the UK, which would generate about 7% of the UK power supply. The board voted to give CEO Jean-Bernard Levy the mandate to sign contracts for the construction of two reactors at Hinkley Point. The French government owns 85% of EDF. Ten members voted in favour, and seven against, Bloomberg reported.

However, the project remains controversial. The delay in approving Hinkley Point C, construction of which was given the go-ahead by the UK government in 2013, has been largely due to concerns about EDF’s financial health, which has been impacted by delays and technical problems at unit 3 of its Flamanville-NPP in northern France, where and EPR reactor is under construction similar to the one planned for Hinkley.

Rating companies have said a decision to proceed with Hinkley could trigger a credit downgrade for EDF, and three of the French company’s main labour unions - CGT, FO and CFE-CGC - are seeking a court decision to void the board’s decision as they want the project to be delayed by about three years to give the company time to complete the construction of similar reactors in France and China, which are several years behind schedule.

The financial risks came to the fore in March, when former EDF Chief Financial Officer Thomas Piquemal resigned because of concerns the company’s balance sheet would be unable to handle the construction, despite the financial return once Hinkley is operational. Levy responded with a plan to sell €10bn ($11bn) of assets by 2020 to help fund the project, and shareholders on 26 July approved the sale of €4bn of new shares by early 2017.

Another board member, Gerard Magnin, resigned on 28 July just before the meeting. In a letter seen by AFP, Magnin, who was invited by the government to join the board in 2014, said he could no longer support France's strategy to push nuclear energy at the expense of other options. "As a board member backed by the shareholding government I no longer wish to support a strategy with which I disagree," he said. He added that the project would mobilise all EDF's resources and prevent it from developing other energy sources. He also compared EDF to deeply-indebted nuclear company Areva. "Let's hope that Hinkley Point does not plunge EDF into an Areva-type abyss as some people fear. EDF would then have lost everything," he said.

Immediately following the board’s decision, the UK government decided to hold a new review of the project. Business and Energy Secretary Greg Clark said: “The UK needs a reliable and secure energy supply and the government believes that nuclear energy is an important part of the mix. The government will now consider carefully all the component parts of this project and make its decision in the early autumn.”

The project will now go ahead, provided the government of new UK Prime Minister Theresa May ratifies the contract-for-difference signed by the previous government. This will effectively subsidise prices for the electricity generated, with EDF being paid GBP92.50 for every megawatt-hour of electricity it produces for 35 years, more than twice the current market price. This would generate a 9% annual rate of return if the plant is built on time and within budget, according to Levy.

EDF has already spent GBP2.5bn on Hinkley Point, and would risk losing the contract if it were to delay the project for years, Levy has said. He argues that EDF needs the project to maintain its know-how and prepare for the retirement and renewal of its ageing French and UK nuclear fleet. The main suppliers to build the two Hinkley reactors include Areva SA, General Electric Co, Bouygues SA, Laing O’Rourke Plc, and Kier Group Plc, according to EDF.

China General Nuclear Power Corp., which is expected to fund a third of the project, must also ratify the accord. The previous UK government of David Cameron, who approved the subsidy, has said Hinkley Point will help reduce greenhouse gas emissions as the UK closes all coal-fired generation by 2025.



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