UPDATE 3-EDF exits U.S. nuclear, ups earnings outlook

Tue Jul 30, 2013 9:05am EDT

* EDF agrees on future exit from US nuclear venture

* Gets put option from Exelon for exit from 2016

* French nuclear, Italy gas contract deals boost outlook

* Shares jump 6.5 pct on earnings outlook upgrade

By Geert De Clercq

PARIS, July 30 (Reuters) - French utility EDF, the world's biggest operator of nuclear plants, is pulling out of nuclear energy in the United States, bowing to the realities of a market that has been transformed by cheap shale gas.

Several nuclear reactors in the U.S. have been closed or are being shuttered as utilities baulk at the big investments needed to extend their lifetimes now that nuclear power has been so decisively undercut by electricity generated from shale gas.

"The spectacular fall of the price of gas in the U.S., which was unimaginable a few years ago, has made this form of energy ultra competitive vis a vis all other forms of energy," EDF Chief Executive Henri Proglio told a news conference.

EDF agreed with its partner Exelon on an exit from their Constellation Energy Nuclear Group (CENG) joint venture, which operates five nuclear plants in the United States with a total capacity of 3.9 gigawatts.

The French utility said it had agreed a put option that allows EDF to sell CENG to Exelon at the fair value of its stake between January 2016 and June 2022. EDF will also receive an exceptional dividend from CENG of $400 million, it said.

"Circumstances for the development of nuclear in the U.S. are not favorable at the moment," Proglio said.

International Energy Agency analyst Dennis Volk said CENG's eastern U.S. power plants were located in some of the most competitive power markets in the country, with high price competition, growing wind capacity and cheap gas.

"It is simply not easy to invest in nuclear and recover your money there," Volk said.

FOCUS ON RENEWABLES IN U.S.

Proglio said EDF would now focus on renewable energy in the United States. EDF employs 860 people in U.S. solar and wind, and since 2010 its generating capacity has doubled to 2.3 gigawatts. It manages another 7 gigawatts for other companies.

EDF, Europe's biggest power producer by output, also employs 320 staff in its U.S. energy trading operation, which is the number one exporter of U.S. coal to Europe.

Morgan Stanley analyst Emmanuel Turpin welcomed the U.S. nuclear exit. "Management inherited this situation. I am pleased with the decision; it shows focus on unlocking value," he said.

The French utility's American atomic adventure started in 2008, when Proglio's predecessor Pierre Gadonneix bought a 49 percent stake in power group Constellation's nuclear plants for $4.7 billion, and accepted a $2 billion put option giving Constellation the right to sell EDF more power plants.

Gadonneix talked about building up to four Areva-designed European Pressurised Reactors in the U.S., but the firms disagreed on implementation, and as the U.S. nuclear outlook darkened, the put became a millstone for EDF. Exelon's 2011 takeover of Constellation further complicated things.

EDF finance chief Thomas Piquemal said the U.S. nuclear adventure had led to 2 billion euros in writedowns in 2009-2012. EDF's U.S. investment totalled 6.4 billion euros, but was partly recouped by selling Exelon shares, he said.

"This was the last and final chapter of our U.S. nuclear investment," Piquemal said.

UPGRADE BOOSTS STOCK

Proglio said the decision would have no impact on talks with the UK government about building reactors in Britain.

The government and EDF are negotiating the minimum price for electricity produced from the firm's proposed Hinkley Point site, Britain's first new nuclear plant in several decades.

Proglio said he expected those talks to wrap up by year-end.

EDF also said that because of the strong performance of its French nuclear fleet and a renegotiation of Italian gas contracts, it raised its outlook for core profit growth in 2013 to at least 3 percent from a range of zero to 3 percent.

First-half earnings before interest, tax, depreciation and amortisation rose 6.9 percent to 9.7 billion euros, net income 3.5 percent to 2.9 billion.

EDF shares surged 7 percent, nearly setting a two-year high, as markets focused on the outlook upgrade, despite the tough economic and regulatory environment, a Paris trader said.

After sinking nearly 70 percent between early 2010 and late 2012, EDF shares have gained 54 percent this year, making them the top performers in France's CAC 40 index.

The shares have been helped by French government plans for the biggest increase in power prices in at least a decade to cover rising costs at the state-owned utility.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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