New UK nuclear build?

Adam Smith Institute, Friday, 02 October 2009 06:02

Events over the last few days have dented the prospects for UK new nuclear-build.

In Germany, the success of the CDU/CSU and FDP coalition has been welcomed by the markets. The shares of both E.On and RWE have rallied in the expectation that Germany's controversial nuclear phase-out policy will be abolished - thereby massively boosting their free cash flow.  Such a reversal does not mean that new nuclear-build will be undertaken in Germany.

It would mean, though, that both companies, along with EnBW and Vattenfall, could extend the lives of their nuclear plants whose capacity exceeds 20,000 MW. Furthermore, both E.On and RWE may well undertake investment at their existing nuclear plants to boost output. Against this background, their interest in participating in UK new nuclear-build may wane. And, in E.On's case, with net debt of c£40 billion, reducing capex - rather than increasing it - is the compelling priority.

The UK Government's new nuclear-build hopes also centre around EdF, which is 84% owned by the French Government. EdF has just confirmed the appointment of a new Chairman, Henri Proglio, who has spent most of his career at Veolia Environnement: he will now be top of DECC's must-meet list. Central to his new responsibilities will be the reduction of EdF's burgeoning net debt, which presumably will involve reversing some of the ambitious international expansion of late. The sale of some UK electricity distribution assets is anticipated.

Consequently, EdF's hitherto robust commitment to new nuclear-build in the UK may erode. After all, it will not yield any revenues until 2018 at the earliest. Add to that, the more general weakness of oil and gas prices - at least compared with the boom times in 2007/08 when new nuclear-build interest peaked - and it is no surprise that the UK new nuclear-build programme is wobbling.

Is this unduly pessimistic?


Not particularly pessimistic at all, certainly in the case of E.On and RWE, whose commitment to UK new build in private is far less, I suspect, than EdF's. Given the state of their respective balance sheets and the seemingly impossible task of accurately predicting how much a fleet of new EPRs or AP-1000s is going to cost (not to mention the uncertainty surrounding the final figure the government will decide on for a fixed unit price to cover new build decommissioning and waste disposal), I think it's an interesting assessment. It certainly makes you wonder whether the likes of E.On's public pronouncement's on nuclear new build are at odds with the reality of situation they currently find themselves in. Out of the three, the most wedded to the principle of new nuclear is EdF and it would be a hugely embarrassing turn around for them to even contemplate the possibility of scaling back plans for the UK . That said, when you're dealing with a company whose ex-CEO's simple solution to their spiralling debt problem was to try and raise French retail electricity prices by 20%, I guess nothing's impossible...


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