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E.D.F. (EDF)

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EDF, China Guangdong In Talks Over UK Nuclear Partnership -Sources

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01/10/2013 | 03:30pm CEST

By Selina Williams and Géraldine Amiel

LONDON--Electricité de France SA (>> EDF) is in talks with state-owned China Guangdong Nuclear Power Holding Co. Ltd. on forming a partnership to build new U.K. nuclear power plants, a deal that could replace EDF's current partnership with British utility Centrica PLC (>> Centrica PLC) and dispel some doubts about whether the French company has sufficient funds for its nuclear ambitions, according to people familiar with the matter.

The potential arrival of the well-financed Chinese company could help ease fears about the future of nuclear energy in the U.K., after plans for a fleet of new reactors have been beset by delays and questions about whether EDF and Centrica were willing to commit the financial resources to follow through on their ambitions.

A new U.K. partnership with CGNPC would provide EDF with much-needed financing as it struggles with difficult market conditions in France and prepares to unveil a cost-cutting plan that it has said could threaten its U.K. investments. The deal would also give the Chinese utility, which already collaborates with EDF on new reactors at home, a foothold in a new market and provide a boost for the U.K. government, which has placed nuclear power at the heart of its efforts to keep the lights on while reducing carbon emissions.

"When you look at the financing situation, having a solvent Chinese partner that's actually building the reactors in China makes sense from many perspectives," said one of the people. "It's the only option," and if it doesn't happen then EDF's U.K. plans could be problematic, the person said.

Talks between EDF and CGNPC have reached a substantive level, one of the people told the Wall Street Journal. CGNPC is EDF's preferred partner, although a deal is unlikely to be clinched before EDF and the U.K. government agree on a guaranteed price consumers will pay for power generated from the planned Hinkley Point power station, said another person.

CGNPC could not be reached for comment. A spokeswoman for EDF declined to comment.

"The U.K. welcomes inward investment to our energy sector," provided companies abide by established regulations, said a spokesman for the U.K. Department of Energy and Climate Change. "We already have foreign investment across many parts of the energy sector," the spokesman said.

The talks are centered around CGNPC taking up the option for a 20% stake in new nuclear projects in the U.K. that is currently held by Centrica, one of the people said. It could even take a stake that is larger than 20%, said another person.

Centrica is likely to withdraw from the construction of new reactors because it fears there will be cost overruns and that indirect subsidies being negotiated with the U.K. government will be insufficient to justify the investment, said another person familiar with the matter.

The potential injection of Chinese funds and expertise into the U.K. comes as both EDF and French nuclear reactor vendor Areva SA (>> AREVA) are already struggling with rising costs and delays in the construction of next-generation European Pressurized Reactors, or EPRs. At Areva's project in Finland, costs have more than doubled to 8 billion euros and the plant is five years behind schedule. EDF's costs at Flamanville in France have doubled to EUR8 billion and they have been delayed by two years.

Meanwhile, CGNPC's construction with EDF of two EPRs in Taishan, China, are on budget and on schedule.

Plans in the U.K. have been set back before construction has even started. EDF's 1.65 gigawatt Hinkley Point project was originally expected to start operating in 2018, but regulatory delays after the Fukushima disaster in Japan have pushed back the start date and it is now unlikely to be up and running before 2020.

EDF has said it will give a cost estimate for Hinkley Point when it makes its final investment decision, which was expected at the end of last year but now will not happen until the end of the first quarter, said a person familiar with the matter.

EDF, which is 85%-owned by the French government, recently said it will prioritize investment in France in the year ahead, raising the possibility of a delay in its nuclear projects in the U.K. "It's still too early to decide [on the U.K. plans] as all the conditions [for the investment] aren't met," the group's chief financial officer, Thomas Piquemal, said in an interview with the Wall Street Journal last month.

EDF is already the biggest supplier of power by volume in the U.K. and was expected to lead the country's nuclear renaissance. It has published plans to build four new nuclear reactors, subject to the right investment framework. These new plants would generate enough electricity to supply about 40% of Britain's homes.

-Write to Selina Williams and Géraldine Amiel at Selina.williams@wsj.com and geraldine.amiel@wsj.com; Twitter: @geraldineamiel; @selinawilliams3 (Wayne Ma in Beijing contributed to this story.)

(MORE TO FOLLOW) Dow Jones Newswires

01-10-13 0929ET

Stocks mentioned in the article : EDF, Centrica PLC, AREVA
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Financials (€)
Sales 2016 72 386 M
EBIT 2016 7 938 M
Net income 2016 3 286 M
Debt 2016 42 619 M
Yield 2016 9,36%
P/E ratio 2016 6,54
P/E ratio 2017 8,87
EV / Sales 2016 0,87x
EV / Sales 2017 0,87x
Capitalization 20 606 M
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Jean-Bernard Lévy Chairman & Chief Executive Officer
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