* China's first move into European nuclear seen possible in
* French firm EDF is dominant UK nuclear player and plans
talks with Chinese
* Last British player in nuclear consortia walked away this
* UK deal would mark split with U.S. where Chinese cyber
attacks in focus
* Chinese state firms have $30-50 bln expansion war chest
By Karolin Schaps and Lorraine Turner
LONDON, Feb 27 China could be on the cusp of one
of its most sensitive European investments as costly plans for
new nuclear reactors in Britain open the door to Chinese
Five years on from the sale of nuclear operator British
Energy to France's EDF, the French firm is looking to
build the first new reactor in the UK since the 1990s and plans
talks with a Chinese partner.
Such a deal would be unthinkable in the United States, where
the White House is stepping up diplomatic pressure and weighing
tougher laws to stem the threat to U.S. businesses and security
from China and other nations.
The Chinese military was accused of carrying out hacking
attacks on companies, including British ones, by a U.S. cyber
security firm last week, an allegation which Beijing's Defence
Ministry has denied.
Yet Britain, Washington's closest political ally, looks
increasingly likely to accept Chinese investment in sensitive
projects given a weak global economy offering few alternatives
for funding the billions it needs to replace ageing reactors.
"China is a trading partner to the United Kingdom with
millions of pounds traded with them already," said Richard
Ottaway, vice-chairman of the Conservative Party which heads the
UK's coalition government.
"I don't see any difference in whether we talk about power
generation or car production. If there are security issues, I'm
quite sure we are capable of addressing them."
ENERGY OUTLOOKS DIFFER
EDF confirmed in January that it would start talks with
China Guangdong Nuclear Power Corp (CGNPC) about forming a
partnership to build nuclear power plants in Britain.
The idea took on new urgency this month, after Britain's
Centrica, owner of British Gas, quit EDF's
That move underscored the diverging energy prospects faced
by London and Washington as U.S. companies and consumers bask in
discounted gas prices brought on by plentiful shale gas while
Britain risks an electricity shortage as older plants close.
Britain foresees 200 billion pounds ($303 billion) in needed
investment in energy by 2020 as slowing economies around the
world constrain state budgets and force lenders and companies to
Centrica cited rising costs as one of the reasons it was
quitting the project with EDF, which could cost as much as 20
billion pounds to build four reactors.
EDF also faces challenges as the bill for a plant it is
building at Flamanville in France has risen to 8.5 billion euros
from an initial estimate of 3.3 billion.
Further constraining nuclear funding are fears stirred by
the March 2011 disaster at Japan's Fukushima plant, which has
hurt public backing, delayed projects and prompted Germany to
phase out nuclear altogether by 2022.
Germany's RWE and E.ON in turn opted to
sell their Horizon nuclear project in the UK to Japan's Hitachi
late last year.
In contrast, China is in the midst of an unparalleled
nuclear building spree as it aims to more than triple its
installed capacity by 2015 to 42 gigawatts (GW).
ACCEPTANCE AND CONCERNS
The British government has repeatedly said it is open to
foreign nuclear investment provided that it meets UK standards.
It has backed up its openness to firms from China in other
sectors already, with Chinese state firms buying minority stakes
in London's Heathrow Airport and Thames Water, a utility serving
14 million Britons.
China's largest foreign takeover - state-owned entity CNOOC
Ltd's $15.1 billion takeover of Canadian oil and gas
company Nexen Inc which closed on Monday - includes
access to British North Sea oil production as well as shale gas
Yet some voices in Britain and France have urged caution.
The French government has launched an investigation into a
2011 deal signed between EDF and CGNPC to establish whether
national interests were jeopardised.
In Britain, a parliamentary committee is probing foreign
companies' participation in projects linked to national
security, including a partnership between China's Huawei
Technologies and BT Group.
"We've been examining the background to that particular
series of events, to see whether there are any causes for
concern or any lessons to be learnt," said Malcolm Rifkind,
chairman of the UK's parliamentary intelligence and security
Other politicians are calling on Britain to adopt an
approach in line with that taken by the United States.
"I think the United States have approached the issue with
their eyes wide open and with security pragmatism," said Mark
Pritchard, a Conservative member of parliament who sits on a
parliamentary committee on national security strategy.
As far as nuclear safety is concerned, China defends its
standards and argues it has never had an incident higher than
level 2 on the INES nuclear event scale where Fukushima was a
Yet critics say delay in disclosing details of a malfunction
at a CGNPC plant near Hong Kong in 2010 is cause for concern.
"You can't divorce the company's problematic ethics
from their corporate involvement in UK nuclear," said Paul
Dorfman, founder of Nuclear Consulting Group and a former
government adviser on radiation risks.
Ultimately, whether CGNPC is brought aboard the EDF project
could hinge on the outcome of current talks between the French
firm and the British government aimed at setting a guaranteed
minimum price for electricity generated from the planned plant.
Details have not been disclosed, but it is clear the UK
government faces a delicate balance between seeking the best
price for cash-strapped consumers and offering a level of return
that will entice French, and possibly Chinese, investment.
For the Chinese, beyond further experience in reactor
construction, a UK deal could mean a long-term investment that
generates an attractive return.
Britain could see a series of nuclear reactors built at five
sites over the next 12 years, yet changes in the ranks of the
three groups planning the work have sparked doubts about
timelines and funding.
In addition to EDF, France's GDF Suez and Spain's
Iberdrola aim to build up to 3,600 megawatts (MW) of
nuclear capacity at a site in West Cumbria, in northwest
England, while Hitachi has plans for up to 6,000 MW at two
Some believe a successful Chinese role alongside EDF could
open the way for further investment in the sector. China's
state-owned companies have a war chest of some $30-50 billion
for international expansion, PwC has calculated, based on
Beijing's latest five-year plan.
"This is a trend we will probably be seeing globally where
Chinese companies will become part of consortia around
technologies that they're helping to build in China," said
George Borovas, head of the international nuclear projects team
at law firm Pillsbury, who has advised foreign companion UK
"The UK might be one of the first to see this happen, it's
going to be a first try," he said.