Bloomberg News

EDF France Reactor Cost Rise May Pressure U.K. Power Price Talks

December 05, 2012

Electricite de France SA’s 2.5 billion-euro ($3.3 billion) cost overrun at a French reactor will probably influence talks with the U.K. government over paying for nuclear projects in England.

The announcement earlier this week may be a tool to secure a better power price for a reactor in the U.K., Liberum Capital Ltd. said. The cost of building EDF’s EPR reactor at Flamanville in Normandy has more than doubled to 8.5 billion euros because of changes to its design after Japan’s Fukushima disaster.

EDF is negotiating with the U.K. government on a guaranteed price for atomic power. The Paris-based company expects to make an investment decision by the end of the year. Parliament is debating legislation published last week designed to encourage EDF and other investors to build 110 billion pounds ($177 billion) of generation capacity and grid upgrades.

“This is all part of a backdrop to use their misfortune in France in a positive way to get a very high price out of the U.K. government,” Tony Roulstone, director of the University of Cambridge’s nuclear energy masters program, said by phone. It’s part of the “negotiating in public” over the price.

EDF Energy, the French utility’s U.K. unit, owns eight existing nuclear plants in the U.K. and will build the country’s first new reactor since the 1990s if the Hinkley Point project in Somerset gets the final go-ahead.

Dominic Nash, a utilities analyst at Liberum, said he didn’t think “it is any coincidence that they’ve announced this towards the end of the year.”

Fair Price

The government would only reach an agreement on a strike price that is fair, affordable and is consistent with the government’s policy of no public subsidy for new nuclear, an official at the Department of Energy said by e-mail. EDF Energy declined to comment on negotiations.

EDF and the government haven’t said what power price is under discussion for Hinkley point. The so-called strike price will be written into a contract for difference that guarantees a minimum price for power regardless of prevailing market conditions. The contract mitigates the risk involved in building a nuclear reactor, which are far more expensive to construct than other power plants.

John Hayes, an energy minister, said Britain would “absolutely” refuse a deal that placed too great a burden on consumers who ultimately fit the bill.

Business Case

Vincent de Rivaz, chief executive officer of U.K. unit EDF Energy, said on Oct. 23 that a more compelling business case was needed before the company makes a final investment decision. He told lawmakers reports EDF wants a strike price of 140 pounds a megawatt-hour, more than double today’s market rate, were “utterly rubbish.”

“This should allow EDF to ask for a price that covers the cost of construction of new nuclear build based on the experience of the group in France,” Macquarie Group Ltd. (MQG) analysts said in a note.

Hayes told lawmakers this week the strike price would be known by the middle of next year.

“No one has a clue of the costs required to build nuclear. I think that nuclear could be prohibitively expensive,” Liberum’s Nash said. “If your glass is half full you’d say that the first-of-the-kind pain that EDF is going through should mean that they won’t necessarily replicate those errors.”

EDF will use reactors made by Areva SA (AREVA), which said this week EDF’s new estimate at the Flamanville reactor “is not representative of the price of an EPR reactor in the series offered in the market today.”

To contact the reporter responsible for this story: Sally Bakewell in London at Sbakewell1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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