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UK report says returns for EDF from new nuclear plants will be much higher than usual

18 March 2014

Returns for French utility EDF from the UK's proposed new nuclear plant in Somerset, Hinkley Point C, will be much higher than for other projects, according to a report by cross-party think-tank Carbon Connect. The UK government has agreed to  guarantee loans to EDF and pay a fixed minimum price for the electricity it generates for 35 years at around twice the current level.

Artists' impression of Hinkley Point C - Image: EDF
Artists' impression of Hinkley Point C - Image: EDF

The report, which was overseen by former UK conservative energy minister Charles Hendry, said investors could earn a return of between 19% and 21% over the lifetime of the project, in comparison with 12% to 15% for Private Finance Initiative (PFI) projects and 8% to 10% for regulated electricity network assets.

The European Commission is investigating whether the UK's support for new nuclear projects complies with European Union state aid rules. The proposed support mechanism for nuclear power is unprecedented in Europe, and the deal is attracting much attention.

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 for Hinkley Point C by the end of the year, and EDF is unlikely to make a final investment decision on the project before then.

The country is counting on the construction of new nuclear plants to replace ageing and polluting power stations that are closing down over the coming years. Besides EDF, the investors in Hinkley Point C include France's Areva and Chinese state-owned companies CGN and CNNC, and the consortium is also looking at building a second plant at Sizewell in Suffolk.

Two other investor groups have also unveiled plans to build new nuclear plants in Britain.
Japan's Hitachi is developing up to five reactors at two sites, and France's GDF Suez has taken Japanese partner Toshiba on board to build three new nuclear units at a location in northern England.These projects are also expected to receive similar state guarantees.

In a response to the Carbon Connect report, EDF Energy released the following statement:

"The report makes a number of assumptions about financing, and equity returns for the Hinkley Point C project. These detailed assumptions are not correct and were neither provided nor validated by EDF Energy. As reported last October, target project returns are 10% and, with borrowing, equity investors may achieve closer to 15%. These investors will take the risk of delivering the project on budget and also face risks on the performance of the station when built. There are in-built mechanisms to reduce the customer price if higher returns prove achievable and to share benefits from any gains in construction costs.

"Project costs for Hinkley Point C have been built up from competitive tendering wherever possible and, as the Government has made clear, the price for electricity is competitive with other forms of low carbon energy.

"EDF Energy agrees with Carbon Connect that the European Commission state aid process is an important opportunity for further scrutiny of the deal. The process will show that the deal is fair and balanced for consumers and investors."

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