Decision on U.K. Nuclear Plans Delayed

From Fox Business News

Reaching agreement with the U.K. government on a guaranteed electricity price is crucial for the success of EDF‘s project as it gives the French utility and any other potential investors certainty on future revenues from new power plants, thereby allowing them to take their final investment decisions on the multi-billion-dollar project. It will also make it easier to bring additional partners into the project to share the construction risk, the people said.

Further delays would be a setback for the U.K. government, which wants to replace aging coal-burning and nuclear plants that will be retired over the next few years.

EDF, which has been spearheading the U.K.’s nuclear revival, originally said it expected to make the final investment decision on the Hinkley Point project in southwest England by the end of 2012. The company later revised that to the end of the first quarter this year. That is now looking unlikely because “there’s still a lot to be done” in talks with the U.K. government, one of the people with direct knowledge of the matter said.

Another person with knowledge of the talks said the two sides appeared to be quite far apart on pricing and didn’t seem to be offering to compromise on their positions. Further delays to an agreement over the guaranteed price adds to questions over whether new nuclear power plants can be commercially viable.

This month, Centrica PLC (CNA.LN) said it had decided not to participate in building new nuclear reactors in the U.K. with EDF, citing uncertainty over overall project costs and the construction schedule. German utilities RWE AG (RWE.XE) and E.ON AG (EOAN.XE) withdrew from U.K. nuclear last year.

In addition to cost pressures, plans to build up to eight nuclear reactors in the U.K. have faced the stiff opposition from environmental activists. The Fukushima nuclear disaster in Japan in 2011 forced the U.K. government to review safety standards and raised costs further.

These problems have already pushed back the start date of EDF’s planned 1.65-gigawatt Hinkley Point nuclear power project, which was originally expected to start operating in 2018, but is now unlikely to do so before 2020.

EDF needs an agreement on the electricity price to clinch a new deal with one or more of several potential new partners to replace Centrica, one of the people said. One of those potential partners is China Guangdong Nuclear Power Holding Co. Ltd., as was reported in The Wall Street Journal in January.

EDF needs to “put together a formal financial framework before enrolling partners into the project” and cannot do this without agreeing the strike price, the person said.

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