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EDF Seeks Partners to Build U.K. Reactors as Debt Balloons

Electricite de France SA, Europe’s biggest power generator, said it’s seeking partners to help finance new nuclear plants in the U.K. after debt swelled.

“We are considering the possibility of opening a little more the capital of these projects by finding a partner,” Senior Executive Vice President of Finance Thomas Piquemal said today on a conference call. “We are considering a better means to finance them and the best way to attract partners.”

EDF is studying building two new reactors at Hinkley Point in southwest England and a further two at its Sizewell site in eastern England. The decision to seek partners follows a 19 percent jump in debt in the first half and comes four months after German utilities EON AG and RWE AG scrapped a British project, saying they couldn’t justify the capital expenditure.

While EDF wants to retain control of reactor ventures in the U.K., that wouldn’t necessitate holding an 80 percent stake, Piquemal said. The company will decide whether to move ahead with new nuclear plants in Britain by the end of the year, Chief Executive Officer Henri Proglio said today.

The U.K. is seeking to revive an expansion of nuclear power to meet energy demand while reducing fuel imports and keeping a lid on polluting emissions. EDF investment would be a boon to the industry after EON and RWE abandoned their project in March.

Development Cost

The cost of a new generation of reactors may reach 60 billion pounds ($94 billion) if all proposed plants get built, according to the U.K.’s Nuclear Advanced Manufacturing Research Centre. The new reactors at Hinkley Point would cost an estimated 10 billion pounds.

EDF’s net financial debt rose to 39.7 billion euros ($48.8 billion) last month from 33.3 billion euros at the end of 2011 after spending commitments increased. Investments in France and the U.K., as well as an obligation to finance renewable-power subsidies in France, drove its debt ratio to 2.5 times earnings, the “maximum limit” set by EDF, it said today in a statement.

“EDF is reconsidering its leverage factor target,” Credit Agricole CIB Research analyst Damien de Saint Germain wrote in a note. The utility “will have difficulties remaining below the 2.5 times limit.”

Net income climbed to 2.77 billion euros in the first half from 2.65 billion euros a year earlier, the statement showed. Earnings before interest, taxes, depreciation and amortization rose 4.6 percent to 9.1 billion euros, beating the 8.65 billion-euro median estimate of four analysts surveyed by Bloomberg.

EDF advanced 1.7 percent to 16.87 euros in Paris trading.

Guidance Cut

Higher hydropower output in EDF’s home market helped counter lower nuclear production. The company reduced its forecast for full-year atomic-power volumes in France, where it needs to invest an estimated 10 billion euros over six years to improve safety under measures ordered by the regulator after the 2011 Fukushima meltdown in Japan.

EDF plans to review costs and investments outside those on nuclear safety improvements and maintenance by the end of the year, it said. The utility had said in February investment could reach as much as 15 billion euros in 2015, compared with 10.5 billion euros last year.

“It’s possible,” this figure will be cut as part of the review, Piquemal said. “Details will be given in February.”

Ebitda Expectation

The company reiterated targets for average annual Ebitda growth of 4 percent to 6 percent to 2015, and annual growth in net income excluding non-recurring items of 5 percent to 10 percent. Dividends will be “at least stable” this year, while debt will drop below 2.5 times Ebitda through 2015, it said.

France’s so-called CSPE tax on electricity bills, intended to pay for the higher costs of producing renewable power, has resulted in a shortfall for EDF because it isn’t high enough to cover costs. The tax accounted for 4.5 billion euros of EDF’s debt at the end of June, according to a company presentation.

Talks have started with the government on “problems posed by the CSPE,” Piquemal said today. “We think we have solutions to solve the problem.”

The utility cut its full-year French nuclear output target to 415 terawatt-hours from a previous forecast of 420 to 425 terawatt-hours. Work on plants for “additional verifications” will prolong shutdowns in the second half, Piquemal said. U.K. atomic output will be higher this year than last, he said.

French nuclear output dropped by 10.6 terawatt-hours in the first half from a year earlier because of maintenance, safety inspections and unplanned outages at plants. Hydroelectric power production rose by 5.9 terawatt-hours.

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