Analysis: Hitachi debacle strengthens Franco-Chinese hand in UK nuclear

KEPCO Engineering & Construction Co

17/01/2019 19:32

* Private investors shy away from funding nuclear plants
    * EDF seeks model to ensure early returns from Sizewell C
    * French EDF and Chinese ally CGN only option left for UK 

    By Geert De Clercq
    PARIS, Jan 17 (Reuters) - Hitachi's decision to freeze its
$28 billion nuclear power project in Britain strengthens the
hand of France's EDF  EDF.PA  and its Chinese partner in talks
with the government on how to finance new reactors.
    Funding new nuclear plants has become critical as Hitachi
became the second Japanese firm to say its British nuclear power
project had hit the buffers over financing. The two projects
would have covered about 13 percent of Britain's power needs.
    EDF and its partner China General Nuclear Power Corporation
(CGN) want to use a financing model under which investors in
their nuclear projects receive payment from the moment they
start construction, reducing their risk.
    But to proceed with this approach, the government must first
win over lawmakers and consumers, already frustrated by hefty
energy bills and costly nuclear projects that often face delays.
    "The question is whether it is sellable to parliament that
all the risks go to the public. But if that is not the case,
they will get no investors," said Stephen Thomas, emeritus
professor of energy policy at Greenwich University. 
    EDF is negotiating with the government on funding the
Sizewell C project using the so-called regulated asset base
model in which investors earn a government-set fixed return from
the start, instead of waiting years until construction is
completed before receiving a return.
    China General Nuclear Power Corporation (CGN)
 IPO-CGNP.HKCGN  has a 20 percent stake in Sizewell C, while EDF
has a 33.5 percent stake in CGN's project to build a reactor at
Bradwell, Essex.  urn:newsml:reuters.com:*:nL8N1ZG3LD
    "If new nuclear is to be successful in a more competitive
energy market – which I very much believe it can be – we need to
consider a new approach to financing future projects," Energy
Secretary Greg Clark told parliament, saying this included
Sizewell and Bradwell.
    He addressed lawmakers after Hitachi said it had failed to
find private equity investors, even though the government had
considered partly funding it with taxpayer's money.  urn:newsml:reuters.com:*:nL3N1ZH2X0
    That announcement followed Toshiba's  6501.T  decision in
November to scrap its NuGen project in Britain after its U.S.
reactor unit Westinghouse went bankrupt and it failed to find a
buyer for the plan.
    
    DOOMED FROM THE START
    Specialists say both projects were doomed from the start.
    Only utilities have the steady cash flows to fund such
long-term projects, but most European utilities pulled out of
Britain's nuclear plans after the 2011 Fukushima disaster led to
rising safety costs and as renewable energy became a more
competitive investment prospect.
    The regulated asset base model may now be one of the few
remaining options to fund new nuclear plants in Europe. It is
commonly used to fund construction of electricity transmission
lines and, in Britain, has been used to fund the Thames Tideway
Tunnel, a "super sewer" for London.
    "Dialogue about a regulated asset base financing model for
Sizewell C is progressing," an EDF official said. 
    But the model has not be used in the nuclear industry, so
talks are likely to be tough as the government seeks a clear
outline of how much it would have to spend over a specified
period and works to avoid writing a blank cheque to cover cost
overruns.
    The government intends to publish its assessment by the
summer at the latest.
    For now, the only nuclear plant under construction in
Britain is EDF's Hinkley Point C project, in which CGN also has
a 33.5 percent stake.
    The deal to fund that plant involved EDF taking on the
financing and bearing the full risk for construction delays or
cost overruns. In return, it was guaranteed a power price of up
to 92.50 pounds per megawatt-hour for 35 years, more than twice
the market rate when signed.
    That drew fierce criticism from lawmakers and the public for
being too generous and there are no plans to repeat it.
    After the Hitachi and Toshiba announcements, the government
is now depending on just EDF and CGN to deliver on its plans for
a fleet of new reactors to meet energy demand as it phases out
old nuclear facilities and coal-fired plants.
    "Britain's energy security and decarbonisation strategy are
hanging by a thread," said French consultant Thibault Laconde.
     

 (Additional reporting by Susanna Twidale in London
Writing by Geert De Clercq
Editing by Georgina Prodhan and Edmund Blair)
 ((geert.declercq@thomsonreuters.com; +33 14949 5343; Reuters
Messaging: Twitter: @gvdeclercq))