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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) -- Centrica plc (OTC:CPYYY) (Windsor, England) has abandoned plans to build new nuclear plants in the U.K. with French partner, Electricite de France S.A. (EPA:EDF) (EDF) (Paris, France), blaming concerns over costs and project delays.
The company, which owns British Gas, had the option to own a 20% stake in four reactors, and its decision to pull out leaves EDF without a partner to shoulder the financial risk. EDF has yet to make a final decision on moving ahead with the construction of Hinkley Point C and is still haggling with the government over the guaranteed price it can expect for electricity produced at the new nuclear plant.
EDF has talked about approaching the Chinese state-owned nuclear company, China Guangdong Nuclear Power Corporation's (CGNPC) (Shenzhen), about joining its U.K. new build programme.
Centrica explained that with pre-development expenditure on the project approaching the agreed 1.8 billion ($2.4 billion) cap, it has decided not to proceed following 'a detailed appraisal of the project'. The company said that 'while there has been progress in a number of key project areas, particularly design and planning, there remains uncertainty about overall project costs and the construction schedule'.
Centrica acquired a 20% interest in EDF Energy's eight operational nuclear power stations in the U.K. in 2009, as well agreeing to taking a 20% interest in the construction of new nuclear power stations at Hinkley Point and Sizewell. Centrica will retain its 20% interest in the eight existing nuclear power stations.
"We believe that nuclear generation has a valuable role to play in a balanced UK energy mix," said Sam Laidlaw, Chief Executive of Centrica. "However, since our initial investment, the anticipated project costs in new nuclear have increased and the construction timetable has extended by a number of years.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. In 2012 we invested over £2 billion in securing supplies of energy for the U.K. and where we see attractive returns we will continue to invest in Britain's energy future."
EDF remains locked in negotiations with the government over its Contract for Difference (CfD) strike price for nuclear.
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 U.K. 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 exit from the U.K.'s new nuclear build sector follows on from the decision last year by German energy giants RWE AG (OTC:RWEOY) (Essen, Germany) and E.ON AG (OTC:EONGY) (Dusseldorf, Germany), to abandon their own U.K. nuclear ambitions. For additional information, see March 30, 2012 article - RWE and E.ON Drop U.K. Nuclear Power Joint Venture.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
The company, which owns British Gas, had the option to own a 20% stake in four reactors, and its decision to pull out leaves EDF without a partner to shoulder the financial risk. EDF has yet to make a final decision on moving ahead with the construction of Hinkley Point C and is still haggling with the government over the guaranteed price it can expect for electricity produced at the new nuclear plant.
EDF has talked about approaching the Chinese state-owned nuclear company, China Guangdong Nuclear Power Corporation's (CGNPC) (Shenzhen), about joining its U.K. new build programme.
Centrica explained that with pre-development expenditure on the project approaching the agreed 1.8 billion ($2.4 billion) cap, it has decided not to proceed following 'a detailed appraisal of the project'. The company said that 'while there has been progress in a number of key project areas, particularly design and planning, there remains uncertainty about overall project costs and the construction schedule'.
Centrica acquired a 20% interest in EDF Energy's eight operational nuclear power stations in the U.K. in 2009, as well agreeing to taking a 20% interest in the construction of new nuclear power stations at Hinkley Point and Sizewell. Centrica will retain its 20% interest in the eight existing nuclear power stations.
"We believe that nuclear generation has a valuable role to play in a balanced UK energy mix," said Sam Laidlaw, Chief Executive of Centrica. "However, since our initial investment, the anticipated project costs in new nuclear have increased and the construction timetable has extended by a number of years.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. In 2012 we invested over £2 billion in securing supplies of energy for the U.K. and where we see attractive returns we will continue to invest in Britain's energy future."
EDF remains locked in negotiations with the government over its Contract for Difference (CfD) strike price for nuclear.
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 U.K. 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 exit from the U.K.'s new nuclear build sector follows on from the decision last year by German energy giants RWE AG (OTC:RWEOY) (Essen, Germany) and E.ON AG (OTC:EONGY) (Dusseldorf, Germany), to abandon their own U.K. nuclear ambitions. For additional information, see March 30, 2012 article - RWE and E.ON Drop U.K. Nuclear Power Joint Venture.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
