EDF and UK Get Closer to Deal on New Nuclear Plant at Hinkley Point

on May 31, 2013

Europe’s biggest power producer Electricite de France SA (EPA:EDF) and the UK government had moved closer to a deal for building two new nuclear reactors at Hinkley Point, the Financial Times reported on Thursday, May 30.

EDF’s share price dropped less than one percent in intraday trading in Paris on May 31.
**Negotiations Progressing**
In its article, the FT quoted an unnamed source as saying that the UK government and EDF Energy Plc, the French company’s British unit, had agreed that EDF should be able to get a 10 percent return on its investment in the first nuclear power plant to be built in Britain in a generation.

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Hinkley Point C will be the third nuclear plant at the site in Somerset. Hinkley A, which is now being decommissioned, began producing electricity in 1965 and was closed down in 1999. Hinkley B, which started generating in 1976, is due to be turned off in 2023.
A decision to build two new nuclear reactors at Hinkley Point has been delayed from the first quarter with EDF negotiating a guaranteed power price with the UK government which plans to shift away from fossil fuels and toward low-carbon energy alternatives.

EDF Energy Plc and the British government have also agreed that the duration of the contract for operating the new nuclear plant will be 35 years. As noted by Bloomberg, the French utility had previously demanded to receive at least £95 a megawatt-hour for 40 years.
The two parties have also been reported as being close to agreeing on other key terms and conditions for the contract such as measures to protect the French utility from any discriminatory changes in UK law. The Wall Street Journal quoted an unnamed source as saying that the two sides had agreed “on every clause, from the legal framework clauses to the contract’s duration, except the strike price”. The strike price is the guaranteed sum which EDF will be paid for providing electricity to the UK.

**Profitability Concerns**
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EDF’s Chief Executive Officer Henri Proglio said on May 30 that the French utility was holding off on the decision to build the Hinkley Point power generators until it was sure they were profitable.
“We won’t go without the formal conviction that we can guarantee the profitability on your investment,” he told shareholders at an annual meeting in Paris, as quoted by Bloomberg, adding that the utility maintained “strong interest” in pursuing the projects.

A spokesman for the UK Department of Energy and Climate Change has said that “an agreement will be reached only if it is fair, affordable, offers value for money for consumers and is consistent with the government’s policy of no public subsidy” for a new nuclear power.
**EDF’s share price was 0.97 percent lower at €17.42 in Paris as of 14:36 CEST on 31 May 2013.**


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