U.K. Delays Decision on Hinkley Point Nuclear Project -- Update
July 29 2016 - 08:36AM
Dow Jones News
By Inti Landauro in Paris and Selina Williams in London
Plans to build the U.K.'s first new nuclear plant in a
generation were unexpectedly delayed after the British government
postponed making a final decision on the controversial GBP18
billion ($23.7 billion) project until the fall.
The news came late Thursday, just hours after French
state-controlled power utility Électricité de France SA's board
voted to approve the project at Hinkley Point in Somerset,
southwest England.
"The government will now consider carefully all the component
parts of this project and make its decision in the early autumn,"
U.K. Business and Energy Secretary Greg Clark said.
A spokeswoman for the Department for Business, Energy and
Industrial Strategy said the delay doesn't mean that the project
has been scrapped. The new government wants to take some more time
to assess the project, she added.
The sudden announcement by the U.K. government, which caught the
French company by surprise, shows the lingering effects of the
political instability in the U.K. after the country's June 23 vote
to leave the European Union.
"There is a new government in the U.K. and it now says it wants
to evaluate the project," EDF Chief Executive Jean-Bernard Lévy
said. "I was informed at the same time as you were," he told
reporters on Friday morning.
EDF had expected to sign contracts to build two nuclear reactors
on Friday.
Shares of EDF were up 8.5% at EUR11.93 ($13.23) in midday Paris
trading, leading the SBF120 midcap stock index. Besides the
prospect that EDF might avoid the heavy risks associated with
Hinkley Point, investors were also encouraged by the company's
first-half results. Earnings before interest, taxes, depreciation
and amortization, a measure of cash flow, were EUR8.94 billion,
above an analyst consensus provided by the company that expected
EUR8.65 billion.
The company also said it had extended the lifetime of most of
its nuclear reactors in France by 10 years, meaning a slowdown in
their depreciation in the company's books.
The Hinkley Point project has proved controversial in both
France and the U.K. Some senior EDF officials and labor unions are
worried about its impact on the company's finances, while some
politicians and environment groups in the U.K. consider it too
expensive and risky.
The six labor-union representatives sitting on EDF's 18-member
board have repeatedly opposed the project. Another board member,
Gerard Magnin, resigned moments before the vote. According to Le
Monde newspaper, he quit in opposition to the project. His
departure follows the resignation earlier this year of the
company's chief financial officer, Thomas Piquemal, over the
project.
Even though the U.K. government guaranteed EDF and its Chinese
partner a price for the electricity generated by the reactors
significantly above market levels, unions and several company
officials have said the costs will saddle EDF with too much
debt.
Paul Marty, a senior credit officer at Moody's Investors
Service, said EDF's approval of the Hinkley Point project was
negative for the company's credit because of the size of the
investment and execution risks.
"Should the project go ahead, the significant scale and
complexity of this project are likely to affect both the group's
business and financial risk profiles as EDF's balance sheet will
have to shoulder the financial implications of a very long
construction phase during which the investment will not generate
any cash flow," Mr. Marty said.
In the U.K., the guaranteed electricity price of GBP92.50 a
megawatt hour for 35 years has been criticized. The level is more
than double the current wholesale power price in the U.K.
Concerns have also been raised that two other projects in Europe
using the same reactor technology are years behind schedule and
billions over budget.
The French government has backed the project and announced a
cash injection of EUR3 billion into EDF to help the company develop
the project, which would lead to job creation in France and buoy
beleaguered state-owned nuclear firm Areva SA, which manufactures
nuclear reactors.
Nicholas Winning in London contributed to this article.
Write to Inti Landauro at inti.landauro@wsj.com and Selina
Williams at selina.williams@wsj.com
(END) Dow Jones Newswires
July 29, 2016 08:21 ET (12:21 GMT)
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