March 18, 2014 / 12:05 AM / 4 years ago

Returns on EDF's UK nuclear deal much higher than usual: report

LONDON (Reuters) - Returns for French utility EDF (EDF.PA) and other investors in Britain’s first new nuclear plant in two decades, supported by the government, are much higher than for other projects, according to a report by a cross-party think-tank.

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

EDF plans to start operating the first new nuclear reactor at the Hinkley Point C site in southern England in 2023. The British government will guarantee a loan to finance the project as well as a fixed minimum price for the electricity it generates for 35 years.

The investors could earn a return of up to 21 percent over the lifetime of the project, Carbon Connect analysts said in a report, which was chaired by a former British conservative energy minister, Charles Hendry.

“Expected equity returns on Hinkley Point C are around 19 to 21 percent, substantially higher than expected equity returns on Private Finance Initiative (PFI) projects and regulated electricity network assets,” the report said on Tuesday.

By comparison, returns are typically 12 to 15 percent for PFI projects and 8 to 10 percent on regulated networks, it said.

The European Commission is investigating whether Britain’s support for nuclear complies with European Union state aid rules.

The EU’s executive arm questioned in its investigation report whether returns of 10 percent on a nuclear project are justified.

Britain is counting on the construction of new nuclear plants to replace ageing and polluting power stations that are closing down over the coming years.

The government’s support mechanism for nuclear power is unprecedented in Europe, which means the deal is attracting huge attention.

Besides EDF, the investors in Hinkley Point include France’s Areva AREVA.PA and Chinese state-owned companies CGN and CNNC.

    Carbon Connect also said the way in which the government and EDF struck their preliminary agreement was not competitive or transparent.

    “Competition is desirable both for affordability, by exerting downward pressure on bids for projects, and to a lesser extent public support, in that it can provide a more transparent guide as to how revenue support is allocated,” the report said.

    The European Commission expects to make a decision on whether it will approve Britain’s state aid support for Hinkley Point by the end of the year, and EDF is unlikely to make a final investment decision on the project before then.

    Two other investor groups have also unveiled plans to build new nuclear plants in Britain.

    Japan’s Hitachi (6501.T) is developing up to five reactors at two sites, and France’s GDF Suez GSZ.PA has taken Japanese partner Toshiba (6502.T) on board to build three new nuclear units at a location in northern England.

    These projects are also expected to receive similar state guarantees.

    editing by Jane Baird

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