* Investment environment 'dire' in EU utilites sector
* New UK nuclear not investable option for most utilities
* UK gov't needs to shoulder risks to get new nuclear built
By Nina Chestney
LONDON, July 6 Britain's nuclear strategy is
"uninvestable" for private clients, who are only likely to put
money into new plants if the government shoulders more of the
risks involved, Citigroup's head of European utilities research
said on Wednesday.
Nuclear developers plan to build around 16 gigawatts of new
nuclear capacity in the UK by 2025 to help meet the UK's tough
climate targets, but the investment environment is "dire", Peter
Atherton told journalists at a briefing in London.
"I don't think the UK will get the 16 gigawatts they are
after by (then)," he said.
"Investors are demanding more of their returns up front in
cash rather than dividends, indicating they don't trust the
capital growth of the sector.
"The risk-reward balance for public equity market investors
is massively negative and I can't see a way of making it
attractive at all," Atherton added.
Shares in the European utility sector have fallen
about 30 percent since February 2009, according to Citigroup, as
EU utilities have been more exposed to commodity price rises
than in Asia or the U.S., and, most recently, due to the impact
Japan's nuclear crisis.
Many EU countries decided to rethink their atomic energy
policy following Japan's Fuskushima disaster. Germany decided to
shut down its nuclear reactors for good by 2022
and the Czech nuclear expansion could also face delay.
PUBLIC MUST PAY
Nuclear power provides two important public benefits:
low-carbon power generation and security of supply, Atherton
"If the value of new nuclear is essentially in those public
goods then the public must have to pay for them.
"If we want (plants) built, the state will have to take on
the risks," he added, saying the government could do this
through direct subsidies, taxes or building new plants itself.
UK nuclear power developers face several risks from planning
uncertainty, construction costs, power prices (revenue),
operating costs, waste and decommissioning.
The UK government wants to reduce the time it takes to get
planning permission and is trying to cut power price risk
through its electricity market reform. But it still expects
developers to shoulder the risks involved in constructing new
"As we stand today, is (new nuclear) an investable option
for Centrica, RWE? Simply put, no. The cost of capital based on
those risks would be way too high to give you an electricity
price which is affordable.
"You would be looking at a project cost of capital
of at least 15 percent. That would require a power price of
about 150-200 pounds per megawatt hour (based on 2017 money) to
make that project work," he said, which is three to four times
as much as current UK spot power prices.
"We think it is uninvestable for public equity markets. EDF
may be willing to take on the construction risks but none of the
other (big utilities) are willing to do that."
EDF Energy has said it would build new nuclear in
the UK based on a 10 percent cost of capital, Atherton said.
"It shouldn't, in my view, but it might because it is acting
on the part of the French government (which wants to protect
French nuclear jobs)."
The startup date of EDF's first UK new nuclear plant in 2018
is likely to be revised after regulatory delays following
Japan's nuclear crisis.
(Reporting by Nina Chestney; editing by Keiron Henderson)