U.K., China Poised for Deal on World's Costliest Nuclear Plant

Flamanville

View of the construction site of the third-generation nuclear plant in Flamanville, northwestern France.

Photographer: Christophe Ena/AP Images
  • Construction cost is 24.5 billion pounds ($37.9 billion)
  • EDF in talks with Chinese investors on deal structure

The U.K. and China are set to announce an accord that will give the Asian nation a stake in Electricite de France SA’s Hinkley Point project, Britain’s first nuclear plant in three decades and the most expensive atomic energy station ever.

The proposed deal is likely to be announced during a state visit to Britain by President Xi Jinping this week and follows protracted talks between EDF and its Chinese partners. The two nations will publish investments and deals worth a “huge” amount of money, including on nuclear power, Zhang Ji, assistant minister of commerce, said last week in Beijing. EDF will still have to make a final investment decision.

The U.K. government says new nuclear plants are a crucial part of the energy mix as Britain plans to cut carbon emissions while securing predictable electricity supplies. With construction costs estimated at 24.5 billion pounds ($37.9 billion) by the European Commission and bolstered by U.K. subsidies at twice the current wholesale power price, opponents have described Hinkley as “the most expensive object on earth.”

“It is a very, very, very, very expensive piece of kit even in the context of nuclear power, and therefore it’s hard to see that it’s value for money,” Peter Atherton, a utilities analyst at Jefferies in London, said in an interview. “The economics don’t work for the private sector and the state always underpins the economics of nuclear power throughout the world.”

Final Decision

EDF, the world’s biggest operator of reactors, and the U.K. agreed two years ago that Hinkley will get 92.50 pounds per megawatt-hour of power for as long as 35 years. That’s competitive with new-build gas and renewable projects, and will give it a rate of return of 10 percent, according to the company.

Construction on the third-generation nuclear plant in Flamanville
Construction on the third-generation nuclear plant in Flamanville
Photographer: Christophe Ena/AP Photo

EDF’s U.K. unit will shoulder all the construction costs associated with building Hinkley Point C and no costs will fall on the tax payer, it said Friday by e-mail.

“Everybody looks at economics of this project and many people believe there are cheaper opportunities to secure power generation capacity,”said Roland Vetter, head of research at CF Partners U.K. LLP, a London-based trader and adviser, said in a phone interview.

Since the deal on power prices, the utility has been negotiating with China General Nuclear Power Corp. and China National Nuclear Corp. over the size of their stakes in Hinkley, which was also the subject to a 10-month competition probe by the European Commission.  The long-delayed project was originally planned to start in 2017, a deadline that has since been pushed to 2023, with EDF Chief Executive Officer Jean-Bernard Levy signaling further delays in September.

“You can’t bank on the timeline.,” Lakis Athanasiou, a utilities analyst at Agency Partners LLP, said by phone from London. “Hinkley is highly unlikely to be finished by 2025 and any other reactors will be beyond 2030.”

Osborne’s Sweetener

To accelerate the deal, Chancellor of the Exchequer George Osborne pledged a guarantee of 2 billion pounds for construction of the plant, during a visit to Beijing last month.

“We’ve invested a lot of time and effort and it’s an important part of the mix,” U.K. Energy Secretary Amber Rudd said Thursday in an interview.

Nuclear power will only become more important for the U.K. in the next decade as the nation debates closing all its 12 coal-fired power plants by 2023 to combat global warming. EDF’s 1.2-gigawatt Sizewell B plant is the only one of the U.K.’s 15 reactors scheduled to generate beyond 2023, and with Britain facing a squeeze on supplies, Rudd’s main job is to ensure enough new generation gets built to replace retiring plants.

While China has a track record of building new reactors at a lower cost than in Europe or the U.S., one of EDF’s top priorities is to tackle surging costs and delays at its new Flamanville-3 reactor. It has the same technology as the two units at Hinkley Point and the startup of the unit has been pushed back to the end of 2018, 11 years after construction began. Costs have more than tripled to 10.5 billion euros ($11.7 billion).

It’s “mystifying” that Britain is persisting with the deal for Hinkley Point, Michael Liebreich, founder of Bloomberg New Energy Finance said Tuesday in a speech in London. “It seems to me that when you’re in a money hole, you should stop digging.”

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