Centrica Plc (CNA), the U.K.’s largest household energy supplier, opted out of a plan to build nuclear reactors in the U.K. with Electricite de France SA because of rising costs and will return 500 million pounds ($786 million) to investors by buying back shares.
Centrica, which had an option to take a 20 percent stake in four new reactors at two of EDF’s power stations, said it decided not to participate because the project is likely to cost more than originally planned and take longer than expected.
“These factors, in particular the lengthening time frame for a return on the capital invested, have led to conclude participation is not right for Centrica,” Sam Laidlaw, chief executive officer of the Windsor, England-based company, said today in a statement.
Centrica’s exit leaves EDF without an investor to share the cost of reactors at Hinkley Point in Somerset and Sizewell in Suffolk. The decision comes as EDF and the government negotiate how much the Paris-based company, which said last month it’s talked to a Chinese company about investing, will get for power generated at the new reactors. The U.K. wants the plants to replace existing units and cut fossil-fuel emissions. German utilities EON AG (EOAN) and RWE AG (RWE) scrapped a British project last year, saying they couldn’t justify the capital expenditure.
Centrica fell 1.2 percent to 349 pence at the close in London trading, valuing the company at 18 billion pounds.
The U.K. company will write off about 200 million pounds it spent on advanced costs for the project, Laidlaw said on a conference call. The company will focus on investing in natural gas production in the North Sea and North America, he said. Its 20 percent share in eight existing nuclear plants in the U.K. is unaffected by today’s decision, he said.
“Centrica is more concerned about the timing of the returns than the costs,” John Musk, an analyst at RBC Capital Markets in London, said by phone. “It will require a 7 billion- pound outward payment to develop it over five to seven years, and then it won’t start to make positive cash-flows until the power station starts.”
A planning decision from the secretary of state for the Hinkley Point project is expected in the “coming weeks,” EDF said today in a statement. The company is in discussions to agree a price for output from the site, which will be key to attracting an investor, said Vincent de Rivaz, chief executive officer of EDF Energy.
“I very much expect EDF to press ahead and to look to do that alongside a partner rather than take on board all of the risk of that investment themselves,” Musk said.
The cost of a new generation of reactors may reach 60 billion pounds if all proposed plants get built, according to the U.K.’s Nuclear Advanced Manufacturing Research Centre.
“The decision by Centrica reflects the company’s investment priorities and is not a reflection on U.K. government policy,” the Department of Energy and Climate Change said in an e-mailed note. “We are determined to make the U.K. a leading global destination for investment in new nuclear, which will play a key role in our future energy mix.”
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