U.K. Holds Up $24 Billion Nuclear Plan After EDF Approval

QuickTake: The Debate Over Nuclear Power
  • CEO has said Hinkley Point power plant is key for EDF
  • U.K. says it won’t rule on project until later this year

The British government cast doubt on the future of a controversial 18-billion pound ($24 billion) project to build Britain’s first nuclear power plant in more than 20 years, pledging to review the deal just hours after the board of France’s state-run utility gave the go-ahead.

QuickTake Nuclear Power

U.K. Business and Energy Secretary Greg Clark said late on Thursday that the government would carefully consider the project before deciding on it in “early autumn.” Critics have said the plan represents poor value for money for consumers, who will pay Electricite de France SA billions of pounds in subsidies to operate the plant for 35 years.

The U.K.’s decision to hold up Hinkley Point follows a meeting between Theresa May and Francois Hollande earlier this month where Britain’s new prime minister was non-committal about the project, according to people present at the private talks. May’s predecessor David Cameron had enthusiastically backed the project, arguing construction would create jobs and allow Britain to meet its carbon reduction goals.

Earlier on Thursday evening, the French company’s board had voted to proceed with the construction of two nuclear reactors at Hinkley Point in southwest England, a project that would take 10 years to build and eventually supply about 7 percent of Britain’s electricity. It had been ready to sign a contract in the U.K. on Friday, before the government signaled the delay, according to two people familiar with the matter.

Government Support

“I have no doubt about the support of the British government led by Mrs. May,” EDF CEO Jean-Bernard Levy said on Friday. He referred to a recent statement by Britain’s new chancellor of the exchequer, Philip Hammond, backing the project.

A decision by May’s government to back away from the project would be a significant policy change, abandoning Britain’s plan to use nuclear stations to replace aging reactors and ensure the country meets its commitments to cut emissions. It would also end the biggest Franco-British industrial project in a generation as the U.K. looks to reconfigure relationships with its continental neighbors after last month’s vote to leave the European Union.

The delay doesn’t mean the government’s energy policy has changed, said the two people familiar with the matter, who asked not to be identified because the information isn’t public. The CEOs of EDF’s U.K. business and its partner China General Nuclear Power Corp. were reassured of this by Business and Energy Secretary Clark in separate meetings in London Friday, one of the people said. Prime Minister May had been planning to make a decision on the project in September and needs more time to study the details, the two people said.

Related: May Silence on Hinkley Point Said to Feed Nerves on Nuclear Plan

“While it is understandable the government wants to get to grips with the details of the Hinkley contract, it must press ahead to finalize the deal as soon as possible,” Josh Hardie, deputy director-general of the Confederation of British Industry, said in a statement. It’s crucial to “send a definite message that the U.K. is well and truly open for business.”

China General Nuclear Power, which is funding a third of the project, understands the U.K. government’s position and is ready to push forward with the development, it said on its Weibo account following EDF’s approval. The company didn’t say in its statement when it would approve its share of the investment. A CGN spokesman didn’t immediately respond to requests for comment on Friday.

End Debate

EDF’s management had hoped that Thursday’s board meeting would end debate about the project’s merit. At Flamanville in France, where the company is building a reactor of the same design proposed for Hinkley Point, costs have more than tripled to 10.5 billion euros ($11.6 billion) and construction is six years behind schedule.

French officials met last week to discuss EDF’s position following Hollande’s talks with May and their debate stretched until about 4 a.m., a person with knowledge of the matter said, asking not to be identified because the meeting was private. The two leaders then spoke by telephone on Wednesday night, with Hollande seeking further assurances about the project from May, the person added.

Before EDF can start pouring cement, the U.K. government needs to ratify a contract that would subsidize prices for the electricity generated.

For a QuickTake Q&A on the Hinkley Point project, click here.

As the U.K. delays a decision on the project, EDF also faces opposition to the plant at home.

The financial risks were highlighted in March when former Chief Financial Officer Thomas Piquemal resigned because of concerns the company’s balance sheet was too stretched to handle construction, despite the projected return once Hinkley is operational.

Levy responded with a plan to sell 10 billion euros of assets by 2020 to help fund the project, and shareholders on Tuesday approved the sale of 4 billion euros of new shares by early 2017. The French government owns 85 percent of EDF.

EDF shares rose as much as 11 percent in Paris Friday to 12.23 euros.

Double Price

EDF’s CGT, FO and CFE-CGC labor unions are seeking a court decision to void the board’s decision as they want the project to be delayed to give the company time to complete the construction of similar reactors in France and China, which are several years behind schedule.

If ratified by the U.K., the Hinkley Point contract would result in EDF being paid 92.50 pounds for every megawatt-hour of electricity it produces for 35 years, more than twice the current market price. That would generate an annual rate of return of 9 percent if the plant is built on time and budget, according to Levy.

EDF, which has already spent 2.5 billion pounds on Hinkley Point, would risk losing the contract if it were to delay the project for years, the CEO has said. The state-controlled company needs the project to maintain its know-how and prepare for the retirement and renewal of its aging French and British nuclear fleet, according to Levy.

The main suppliers to build the two reactors at Hinkley Point include Areva SA, General Electric Co., Bouygues SA, Laing O’Rourke Plc, and Kier Group Plc, according to EDF.

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