French officials are pushing British ministers for loan guarantees to help EDF finance Britain’s new nuclear power plant, Hinkley Point C. The price of the station has increased dramatically.
EDF, the French utility , said last week the cost of a new nuclear power plant it is building could reach as high as £46bn. This compares to £18bn at 2015 prices. It also pushed back the completion date for the first of two units by at least two year, at the latest, until 2029.
According to the contract drafted a decade earlier, any cost overruns in Hinkley will fall on EDF and not the British taxpayer.
Three people with knowledge of the situation say that French officials want the UK to give EDF state guarantees for new Hinkley loans. This would allow EDF the opportunity to issue project-level bonds and reduce pressure on its finances.
EDF, as the senior partner of the scheme, and CGN have jointly funded the project until now. CGN, which had already met its contractual obligations to contribute to overruns, has stopped doing so after the UK government moved to force the Chinese company to leave the nuclear sector due to a deterioration of relations with Beijing.
The UK government has insisted that it will not bear any costs. The UK government insists it will not shoulder any costs.
The French proposal is similar to the initial offer made by the UK Government when Hinkley contracts first began to be negotiated. Ministers in 2014 offered EDF a £10bn loan guarantee on the project.
When the final investment decision in 2016 was made, British officials retracted the offer because of concerns over mounting costs at EDF’s project to build an entirely new nuclear power plant in France using the same reactor technology used at Hinkley.
The British government instead agreed to a generous subvention arrangement which guaranteed a minimum power price for Hinkley in the future to help finance construction. EDF rejected an offer to guarantee £2bn in loans for a short period of time.
According to people who were close to the discussions, French officials floated several options to ease EDF’s financial burden. These included the British government bringing in another partner and reopening subsidy arrangements for future power supplies.
A person close to EDF stated that “we’ve always said we could look for more partners at a particular moment if necessary.”
A British official admitted that pressure was growing from Paris for a compromise. One person close to UK Ministers said, “At the end of the day, governments are always responsible for their own national infrastructure failure.” “The escape card is that the risk was transferred to another state, but the question here is whether we can enforce this transfer in extreme circumstances.” Ultimately it becomes a potentially very messy government-to-government issue.”
Bond markets do not treat EDF’s borrowings as equal to sovereign debt, despite the fact that EDF was nationalised last year by France. S&P rates EDF at BBB, compared to AA for French government debt.
A second French proposal could change the terms of the contract to build EDF’s other major UK nuclear project – a new power plant planned at Sizewell, Suffolk.
The British government has committed £2.5bn to the project, and EDF took a 50% stake in the company that will build the plant. They’re looking for an additional £20bn in outside investment. Theoretically, EDF could invest more money in Sizewell if the government offered to help Hinkley.
A second French idea would be to convince the UK to accelerate some of their future financial support to Hinkley. This is dependent on the sale by the plant of the power produced once it’s operational, so it’s unclear how it would work.