EDF Approves $24 Billion U.K. Nuclear Power Plant Projectby
CEO has said Hinkley Point power plant is key for EDF
U.K. says it won’t rule on project until later this year
Electricite de France SA’s board approved an 18-billion pound ($24 billion) project to build Britain’s first nuclear power plant in more than 20 years, shrugging off concerns that construction will financially strain the state-run utility. That prompted the U.K. government to say it won’t rule on the project until later this year.
The French company’s board voted Thursday to give Chief Executive Officer Jean-Bernard Levy a mandate to sign contracts for the construction of two nuclear reactors at Hinkley Point in the U.K. Ten members voted in favor, with seven opposed, two people familiar with the matter said, asking not to be identified because the meeting was private. U.K. Business and Energy Secretary Greg Clark said by e-mail that the government would carefully consider the project before deciding on it in “early autumn.”
The two reactors “will strengthen EDF’s presence in Britain, a country where its subsidiary, EDF Energy, already operates 15 nuclear reactors and is the largest electricity supplier by volume,” the Paris-based company said in a statement Thursday. Hinkley Point “is a unique asset for French and British industries as it will benefit the whole of the nuclear sectors.”
The French government and EDF see the project in southwest England as essential to the future of France’s nuclear industry. The board’s approval comes even as U.K. Prime Minister Theresa May’s silence on the project at a meeting last week and the government’s latest statement sow speculation that political support in the country may be waning.
May’s caution contrasts with the administration of predecessor David Cameron, which consistently deflected criticism of the project’s cost -- it’s likely to be the most expensive nuclear plant ever built -- by pointing to the economic boost from building the plant and the role of atomic power in reducing carbon emissions.
China General Nuclear Power Corp., 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, China’s largest nuclear-power operator, 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.
The approval “is a major vote of confidence in the U.K.’s energy market, and in the vital role that new nuclear will play in delivering the U.K.’s low carbon aspirations,” Tony Ward, head of power and utilities at consultant EY, said by e-mail. “The challenge now shifts from getting the project structured to that of delivering to time and cost.”
The U.K. government would need to ratify a contract that would subsidize prices for the electricity generated for as long as 35 years.
EDF’s management will hope that Thursday’s board meeting will 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.
“Similar reactors to Hinkley have never been built on budget or on time,” John Sauven, Greenpeace executive director, said in a statement. “This government should be supporting renewable energy companies whose power plants are safe, quicker to build and coming down in cost.”
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 financial 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.
Rating companies have said a decision to proceed with Hinkley Point will probably trigger a credit downgrade for EDF, and three of the French company’s main labor unions have called for the development to be delayed to reduce financial pressure and construction risks.
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 by about three years 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.
“Although some may think that the strike price is high, it isn’t when you compare it with the cost of offshore wind, solar or other forms of renewable energy,” Sue Ion, a fellow of the Royal Academy of Engineering, said in a statement. “Over its 60-plus-year lifetime, Hinkley Point will deliver enough consistent reliable baseload electricity to power five million homes.”
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. It would generate about 7 percent of the U.K.’s power supply.