The U.K. may agree with Electricite de France SA (EDF) on guaranteeing power prices within weeks, paving the way for the nation’s first new nuclear plant in two decades.
“We’re not quite there yet, but I hope we will be in the next few weeks,” Energy Minister Michael Fallon told the Financial Times. A spokesman for Fallon confirmed the comments.
The U.K. is trying to encourage the construction of new plants while curbing greenhouse gases and household bills. EDF’s plan to build two Areva SA (AREVA) reactors at the site hinges on the rate it gets for power under a so-called contract-for-difference that’s agreed on with the government and paid for by consumers.
EDF is seeking a strike price of 95 pounds ($154) to 99.50 pounds a megawatt-hour for the plant, a person familiar with the talks said in February. The FT today said the utility is seeking at least 93 pounds and the government isn’t prepared to offer much more than 90 pounds. In comparison, the month-ahead power price in the U.K. averaged about 49 pounds in the past year.
Sue Fletcher, an EDF spokeswoman, declined to comment on prices or talks. The Department for Energy and Climate Change said in a statement that a deal must offer “value for money.”
“Negotiations remain ongoing between government and EDF on the potential terms of an investment contract,” the energy department said. “ A contract will only be offered if it is value for money, fair and affordable.”
A 90-pound strike price isn’t likely to be acceptable to EDF if they’re taking on the full risk of construction, said Lakis Athanasiou, a utilities analyst at Agency Partners LLP.
“If they are accepting that, they’ll have ameliorations in the contract with construction risk being placed onto government,” Athanasiou said. “If government takes on construction risk, with nothing falling on EDF, then 90 pounds would be very, very acceptable” and 75 pounds enough, he said.
Opposition Labour Party proposals to freeze retail power prices for 20 months if it is elected in a 2015 poll won’t likely affect Hinkley Point, Athanasiou said.
“The decision to commit on the back of the CFD contract would have to take place before the election to move forward with the plans EDF have,” Matt Brown, head of Poyry Oyj (POY1V)’s U.K. management consulting business, said today by phone. “But investments thereafter by EDF in other new nuclear plants might be affected. Increasing regulatory risk at a time when they’re taking a long term and high-capital decision isn’t helpful.”
Brown said Poyry’s calculations suggest the strike price needs to be just above 100 pounds, assuming a 40-year contract.
EDF is in talks to allow China General Nuclear Power Group to take as much as 49 percent in Hinkley Point, the FT reported.
The involvement of a Chinese partner is “essential” as the country has recent experience of building Areva’s EPR reactors, said George Borovas, head of international nuclear projects at law firm Pillsbury Winthrop Shaw Pittman LLP. “From a financing and a project development point of view, I would expect that lenders to the project and investors in the project would seek and welcome this,” he said in a phone interview.
Energy Secretary Ed Davey last month held meetings in China with businesses including China General Nuclear Power Corp., China National Nuclear Corp. and State Nuclear Power Technology Corp., according to the energy department. The U.K. has also signed a memorandum of understanding to allow Rosatom, Russia’s state atomic energy company, to invest in British projects.
“The U.K. is open for business and actively welcomes inward investment to our energy sector,” the energy department said in an e-mailed statement. “Any energy company, nuclear or otherwise, that had an interest would need to meet all independent regulatory standards required in the U.K. and EU.”
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