Winners and Losers From Hinkley Point’s Advance in U.K.
(Bloomberg) -- U.K. Prime Minister Theresa May’s decision to back the 18 billion pound ($24 billion) Hinkley Point nuclear power plant in Somerset, England, developed by Electricite de France SA hands needed work to the utility and its suppliers.
It’s a blow for environmental groups, renewable energy promoters and the developers of other nuclear plants, since government approval came with new strings attached. After keeping the plant’s future in limbo for seven weeks, the government said it will seek a new legal framework for future projects that give it a veto over changes in control.
The decision will improve relations with France and China, deepen links with state-controlled enterprises with deep pockets including Electricite de France SA and China General Nuclear Power Corp., the two major stakeholders in the project. Here’s a list of winners and losers from May’s embrace for nuclear power:
- EDF -- The company will earn a 9 percent rate of return and 92.50 pounds for each megawatt-hour of power generated, double the current market price. The caveat is that it also must shoulder the cost and risk associated with construction. Earlier this year, EDF’s board divided on whether to back the plan, resulting in the departure of the chief financial officer and lawsuits from unions concerned it may bankrupt their employer. The decision means the billions of pounds invested in preparatory work won’t go to waste.
- China -- Britain’s endorsement will allow a steady stream of income for a Chinese company and other projects backed by China to advance. If subsequent plants are built, Britain would become a major showcase of Chinese nuclear technology, making the country a plausible exporter of high-value equipment. The decision also suggests the U.K. has overcome security concerns from China owning a stake such a strategically crucial industry.
- France -- The French government owns 85 percent of EDF. President Francois Hollande supported the project, which is an emblem of national prestige. The ability of EDF to sell its technology abroad helps the nation maintain a leading position in nuclear energy and a steady stream of revenue once plants are completed.
- China General Nuclear Power Corp. -- The state-owned company will own a third of the Hinkley Point project after investing 6 billion pounds, sharing in the 9 percent return. The project will give it experience in managing large overseas investments and foreign regulators, something China needs to develop its own nuclear export business.
- Areva SA -- The project is welcome work for the French company that will will build the two reactors at Hinkley Point. It has suffered five straight years of losses and said it expects negative cash flow from operations in 2016.
- Cameco Corp. -- The world’s biggest listed company supplying uranium said the decision is good news, indicating “those who had written off nuclear power were premature,” Chief Executive Officer Tim Gitzel said at an event in London on Thursday. It will add to demand that’s “flat” in Europe and rising in Asia. He expects annual growth of about 2 percent to 3 percent worldwide.
- The U.K. steel industry -- The power station will require 230,000 tons of steel and will draw on mills in Wales hurting for business. British steelmaking has been in decline for decades, and Tata Steel Ltd. has been trying to sell off its U.K. business.
- Climate-change campaigners -- Hinkley Point will help the U.K. reduce greenhouse-gas emissions, supplying 7 percent of the nation’s power needs without burning fossil fuels.
- Electricity consumers -- Power customers will pay for most of the project thorough the cost of electricity. Hinkley Point is estimated to add 230 pounds to electricity bills a year on average. The 92.50 pounds a megawatt-hour price for Hinkley’s power will rise with inflation over the 35 year of the contract and is roughly double the current price in wholesale markets.
- Renewable-energy developers -- The companies that develop wind farms including Dong Energy A/S, Vattenfall AB, Iberdrola SA and SSE Plc have been driving down the cost of renewables and arguing that they can produce clean electricity at the same cost or less than Hinkley. The nuclear plant’s approval indicates government backing for the biggest traditional source of clean energy.
- Drax Group Plc -- Once the owner of the U.K.’s biggest coal-fired power plant, Drax has converted its boilers to run on biomass in the form of wood pellets, qualifying for renewable-energy subsidies. Like nuclear, it can provide a steady and predictable baseload for the grid. It’s less likely to get further support with the U.K. tilting its demand toward atomic reactors. Its stock in London has dropped more than 7 percent in the past five trading sessions.
- Other nuclear power plant developers -- Horizon Nuclear Power Ltd. and NuGeneration Ltd. also are working on projects that would follow Hinkley. The government’s plan to take a “special share” in future new nuclear projects raises questions about the structure of their deals that will require time to consider and complicate efforts to raise funding.
- Environmentalists -- Hinkley will saddle the U.K. with radioactive waste for thousands of years, and there’s still no long-term disposal plan in place, Friends of the Earth said. The project also diverts funds in the form of government subsidy that might otherwise be spent on other forms of renewable such as solar and wind power, which are more palatable to environmental groups.