Electricite de France SA is seeking guarantees from the the U.K. government that the next generation of nuclear reactors will get power prices almost double current levels before agreeing to their development, said a person familiar with the matter.
Europe’s biggest power generator is aiming for a so-called strike price of 95 pounds ($144) to 99.50 pounds a megawatt-hour to build the atomic power stations, according to the person, who asked not to be identified because the talks are private. The rate is about twice the wholesale market rate for electricity.
An EDF official declined to comment.
The U.K. faces pressure to agree on a deal with EDF, which is trying to lock in a rate for 40 years, after Centrica Plc dropped plans to help build the nation’s first reactors since the 1980s. The French company won’t push ahead with facilities proposed for Somerset, southern England, unless investment is profitable, Chief Executive Officer Henri Proglio said Feb. 14.
Under the so-called contracts for difference system, EDF gets a guaranteed power, or strike, price regardless of market conditions. Should wholesale power prices drop below that level, EDF will be compensated through extra charges on consumer bills, and if they are higher, the company pays back the difference.
EDF and the government haven’t reached agreement on commercial terms or a strike price in their negotiations, a Department for Energy and Climate Change spokesman said. The Independent newspaper reported EDF’s price range earlier.
“There are huge costs associated with nuclear and no certainty of the return on investment,” according to Josef Pospisil, head of utilities and transport at Fitch Ratings. “Nuclear has a future in France, Finland is pushing ahead with a project but anything else in Europe would need government backing.”
While a 40-year lock-in allows EDF to cut project risks, it’s potentially capping revenues should industry efforts to curb carbon emissions raise prices, said Brian Potskowski, an analyst in London at Bloomberg New Energy Finance. It may also make it harder to get European approval for state aid, he said.
“We’ve seen tremendous upheaval in the energy markets in just a few years’ time,” Potskowski said. “Undoubtedly, we can expect significant shifts over the next four decades.”