Centrica pulls out of UK nuclear new-build partnership with EDF

04 February 2013

On February 4 Centrica said it had withdrawn from a planned joint project with EDF Energy to build four new nuclear reactors at Hinkley Point in Somerset and Sizewell in Suffolk. The British Gas owner blamed spiralling costs and delays. The group had an option to take a 20% stake in the new-build nuclear reactors.

An artist's impression of the two reactors at Hinkley Point C

"Since our initial investment, the anticipated project costs in new nuclear have increased and the construction timetable has extended by a number of years," Centrica chief executive Sam Laidlaw said. “These factors, in particular the lengthening time frame for a return on the capital invested in a project of this scale, have led us to conclude that participation is not right for Centrica and our shareholders."

The company warned that while there had been "progress in a number of key project areas, particularly design and planning, there remains uncertainty about overall project costs and the construction schedule".

"In 2012 we invested over £2bn securing supplies of energy for the UK and where we see attractive returns we will continue to invest in Britain's energy future," he said.

Mr Laidlaw said he still believed nuclear had a valuable role to play in the UK's energy mix, but investing in the new reactors would not be right for Centrica or its shareholders.

Centrica said it would launch a £500m share repurchase programme "to return surplus capital to shareholders", which would be conducted over the next 12 months.

EDF is understood to be in talks with China Guangdong Nuclear Corporation over replacing Centrica in the venture and buying part of EDF's 80% stake. But even if a replacement can be found Centrica's parting shot over ongoing uncertainty around costs and timetable will be deeply unwelcome for both the Government and for EDF.

EDF Energy said in a statement: “EDF Energy respects Centrica’s strategic decision not to take up its option of a share in the project. EDF Energy was prepared for this decision and understands that the profile and scale of this investment may not meet Centrica’s shareholders’ current expectations and priorities.”

The French-owned group said Centrica would retain its 20% stake in EDF Energy’s eight nuclear power stations in the UK, which had recently recorded their best output for seven years producing 60 TWh of electricity, enough to power half of the UK’s homes.

EDF Energy CEO Vincent de Rivaz said: “The new nuclear project at Hinkley Point C is making good and continuous progress. EDF Energy is working with Government to agree a price for the electricity at Hinkley Point C which will be fair and balanced for UK consumers and investors. This Contract for Difference is now more than ever the key to attracting investors and to unlock the funding for this project which will give the UK the secure, low carbon energy it needs for the future.”

“A robust CFD will be the basis to finalise discussions with potential investors. Centrica’s decision underlines the challenge this represents for the Government. Our discussions with the Government on the CFD are based on well understood and stable costs and a timetable which has already taken account of all the events since 2009 when Centrica joined the project. “