EDF says Hinkley Point cost could rise 3 billion pounds, timing slips

PARIS (Reuters) - French utility EDF EDF.PA warned on Thursday that the cost of building two nuclear reactors in Britain could reach nearly 21 billion pounds, about three billion more than it said in October.

A tractor mows a field on the site where EDF Energy's Hinkley Point C nuclear power station will be constructed in Bridgwater, southwest England in this file photograph taken October 24, 2013. REUTERS/Suzanne Plunkett/Files

The equity commitment on the Hinkley Point project includes a contingency margin which could reach 13.8 billion pounds for EDF and 6.9 billion for Chinese partner CGN, for a total of 20.7 billion pounds, EDF said in a statement ahead of its annual shareholders’ meeting.

In October, EDF put the equity financing at 12 billion and 6 billion, respectively, or 18 billion pounds.

EDF also said it would commit to provide “limited” financial guarantees to CGN, particularly in case of cost overruns related to delays, or in the event that European authorities challenge EDF’s “Contract for Difference” with the UK government.

It did not specify the size of these guarantees.

EDF said that since signing its agreement with CGN in October, talks with CGN had continued and that it had now finalised stable contract documents.

The utility, 85 percent state-owned, confirmed that the projected rate of return (IRR) on Hinkley Point is estimated at around 9 percent over the life of the project. It said every six months of delay would reduce the IRR by about 20 basis points.

“We will do everything we can to make sure there is no delay,” chief Executive Jean-Bernard Levy told shareholders.

EDF also said it expects it to take 115 months (9.5 years) between a final investment decision until commissioning of the first reactor.

The final investment decision has been delayed several times. Last month, French Economy Minister Emmanuel Macron said he expected a decision by September.

This means that if the decision is taken in September, Hinkley Point would start up at the earliest in spring 2026.

In October, EDF said the first operation of Hinkley Point C was scheduled for 2025, which was already a two-year delay from its 2013 estimate for a 2023 start.

Levy also said that a planned 4 billion euro capital increase would be launched by year-end or at the start of 2017 if market conditions are favourable.

In a separate statement published after the close of trading, EDF said it does not anticipate any additional costs beyond 18 billion pounds and that contingency arrangements are normal practice for any construction project to ensure money is available “in case of more extreme scenarios”.

“We don’t expect to use the additional 15 percent (of equity) as we expect Hinkley Point C will be on time and on budget,” it said.

Other EPR reactors of the type that EDF plans to build in Britain have suffered years of delays and billions of cost overruns.

($1 = 0.6938 pounds, 1 euro = 0.7917 pounds)

Reporting by Geert De Clercq; Editing by Andrew Callus and David Evans