EDF, the builder of the UK’s new nuclear power station, Hinkley Point C, is scrambling to prevent a cash crunch amid concerns that its Chinese partner, China General Nuclear (CGN), will not provide additional support for the project.
EDF stated that the likelihood is high that CGN will not contribute to a crucial round of funding for Hinkley Point C, leaving EDF on the hook for billions of pounds.
This comes at a time when EDF’s balance sheet has already been stretched by outages on its nuclear fleet, worsening Europe’s energy crisis. Inflation has caused the expected cost of the project to increase from £26bn to £32bn, up from the initial estimate of £18bn when the project was approved in 2016.
CGN was initially involved in three power stations, including Sizewell C, Hinkley Point C, and Bradwell B, as part of a plan for a “golden era” in Anglo-Chinese relations. However, last year, EDF bought CGN out of Sizewell C amid concerns about the Chinese regime’s involvement in sensitive infrastructure.
As part of this deal, it is thought that CGN is no longer expected to provide extra voluntary funding to Hinkley Point C, and it is also unlikely to be involved in Bradwell B.
EDF owns the UK’s ageing nuclear power fleet and is building Hinkley Point C with a minority stake from CGN, with EDF owning 66.5% and CGN owning 33.5%. However, EDF is facing huge demands for its cash in France, where plans to build and maintain reactors are expected to cost more than €80bn.
EDF reported a record net annual loss for 2022 of €17.9bn (£15.9bn) due to lower nuclear output, as well as a price cap on its sales imposed by the French government. The company’s group net debt has climbed to €64.5bn from €43bn in 2021.
Hinkley Point C will be the UK’s first new nuclear reactor in a generation and will supply electricity to around six million homes, providing a crucial source of low carbon power to help meet demand on calm, still, days when wind turbines’ output is low.
Initially set to cost £18bn and open in 2025, the Hinkley Point C nuclear power project has been delayed and is now expected to cost £25bn-£26bn, equivalent to £32bn due to inflation, with a new opening date set for June 2027.
The project has been funded by EDF and CGN according to their stakes. However, EDF has stated that the cost overruns triggered a mechanism requiring shareholders to provide extra voluntary cash. The company warned that there is a high probability that CGN will not fund the project beyond its committed equity cap, leaving EDF to contribute in place of CGN.
In hopes of attracting outside investors, the UK government has agreed to provide £700m to help fund the Hinkley Point C’s successor, Sizewell C, which EDF plans to build in Suffolk. EDF’s UK business made an underlying profit of £1.1bn, compared with a loss of £21m in 2021, despite losses at the group level. This was helped by high electricity prices amid energy market turmoil triggered by Russia’s war on Ukraine.
EDF’s chief executive, Luc Remont, stated he was “delighted” with the government’s investment but that it was “too early” to comment further.
In a significant sign that the energy crisis may be receding, European gas prices have slumped to their lowest level in 18 months, thanks to a mild winter and efforts to fill storage facilities. On Friday, the benchmark price for natural gas futures fell below €50 per megawatt hour for the first time since August 2021, with prices now more than 80% below the peaks reached last year.
Prices began to rise quickly in the autumn of 2021 amid growing tensions between Russia and Ukraine. They then surged to record highs in 2022 following Russia’s invasion of its neighbour and its decision to cut off gas exports to Europe in retaliation for Western sanctions.
Despite this, a UK Government spokesman highlighted that new nuclear power is essential to the country’s energy security, providing affordable and clean homegrown power. He noted that the government has made a historic investment of £700 million in developing the Sizewell C project and becoming a project shareholder. The spokesman added that the government will continue to work closely with EDF to bring Hinkley Point C, the first new nuclear power station in a generation, to completion.
