EDF Agrees to Build U.K.’s First Nuclear Plant Since 1995

Electricite de France SA will build the U.K.’s first nuclear reactors since 1995 after reaching a deal with the government on guaranteed prices for the power they’ll generate.

EDF, together with partners Areva SA and two Chinese nuclear companies, agreed to construct the plant at Hinkley Point in southwest England after the government offered a power price that’s almost double today’s market rate. The project will cost about 16 billion pounds ($26 billion) and take 10 years to build, the Paris-based company said in a statement.

“This deal means 16 billion pounds of investment coming into the country and the creation of 25,000 jobs,” Prime Minister David Cameron said in a statement released in London today. “This also marks the next generation of nuclear power in Britain, which has an important part to play in contributing to our future energy needs.”

The decision caps more than a year of negotiations with the French utility and marks the cornerstone of Cameron’s effort to lure 110 billion pounds of investment into Britain’s aging electricity infrastructure by the end of the decade. Regulators have warned that the U.K. risks blackouts unless it speeds efforts to replace obsolete power plants.

“This decision could have a positive domino effect on the U.K. nuclear industry as an uncertainty that plagued the sector in recent years has finally been removed,” said George Borovas, head of international nuclear projects at law firm Pillsbury Winthrop Shaw Pittmann LLP. “Additional new-build projects are likely to follow.”

Strike Price

EDF will earn at least 92.50 pounds a megawatt-hour over a period of 35 years at Hinkley Point. The so-called strike price is above the 49-pound market average in the past year. If EDF goes ahead with a second nuclear project at Sizewell in Suffolk the strike price will fall to 89.50 pounds. The government will also offer loan guarantees to help 65 percent of the cost of construction.

EDF will own 45 percent to 50 percent of the project, while Areva, which will supply the reactors, will have 10 percent. China General Nuclear Power Corp. and China National Nuclear Corp. will have 30 percent to 40 percent of the project. Talks are taking place with other interested parties for as much as 15 percent.

The project is conditional on agreeing terms for state aid with the European Union, EDF said.

Financial Support

The financial support for new nuclear stations may prove controversial at a time when consumers and the Labour opposition are bridling over rising utility bills.

Energy costs for U.K. households have risen 45 percent on average from 2007 through 2012 even though the nation suffered its worst recession in a generation. Labour leader Ed Miliband has said he would cap household bills if he wins the election due in 2015.

“Labour supports the development of new nuclear power stations in Britain as part of a balanced, secure and clean energy mix,” Caroline Flint, Labour’s spokeswoman for energy, said in an e-mail. “The potential costs of this agreement make it all the more crucial that we end the rip-offs and have an energy market that people trust.”

The support for nuclear energy is less than the 155 pounds being offered to offshore wind farms. The government has been trying to reduce those subsidies to limit the impact on power bills even as it encourages cleaner forms of power generation that would meet commitments to rein in greenhouse gases.

Renewing Nuclear

Renewing the nuclear industry is central to Cameron’s plans for keeping electricity flowing as older oil, coal and nuclear plants retire from service.

The government has promised to cut carbon dioxide emissions by 34 percent in 2020 from 1990 levels. Failure to build the 16 gigawatts of new nuclear capacity the government is seeking by 2025 would jeopardize the carbon targets, Parliament’s Energy and Climate Change Committee said in March.

Government backing for the Hinkley Point project may lead Hitachi Ltd., Iberdrola SA and GDF Suez SA to proceed with their own nuclear plants in Britain, which has decided to press ahead with atomic power as Japan and Germany wind down their industries following the meltdown in Fukushima two years ago.

EDF intends to build two EPR reactors made by Areva at Hinkley Point, about 150 miles west of London on the southern edge of the Bristol Channel. They will have a total capacity of 3.3 gigawatts, enough to supply 5 million homes for 60 years.

Great Opportunity

“The EPR project at Hinkley Point represents a great opportunity for the French nuclear industry,” EDF Chairman Henri Proglio said in today’s statement.

EDF already owns eight nuclear stations totaling almost 9 gigawatts in the U.K., though only its 1.2-gigawatt Sizewell B, the U.K.’s youngest plant completed in 1995, is scheduled to stay open past 2023.

Areva’s reactor design was approved for use in the U.K. by the Office for Nuclear Regulation and the Environment Agency in December. EDF won planning permission for Hinkley Point on March 19. The site already houses two smaller reactors that EDF says are due to be decommissioned around 2023.

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