The French energy company EDF controversially extended their approval to a large scale nuclear power plant project in southwest England located at Hinkley Point. EDF will be required to put up 24 billion euros to fund the expansive project, a number that has triggered concern and disapproval over the feasibility and amount of risk attached to it. The approval alone caused Gerard Magnin, a respected EDF board member, to resign claiming, “I didn’t want to endorse any longer a strategy that I don’t share” (1). EDF is seemingly taking risks that don’t necessarily make sense for the current state of their enterprise as the company “can barely hold itself together” according to John Sauven (2).
EDF’s case for undertaking this project is certainly not helped by its latest project in France at Flamanville, where a similar project is six years behind and the cost have more than tripled. In addition, the company’s CFO recently resigned citing too many concerns with the budget sheet--a decision that opened the door for much speculation.
In addition to the plan itself, the approval process also caused serious concern for EDF. The board was given 48 hours to read the 2500 pages of contracts before ultimately voting 10-7 in favor of it (5). This time window combined with a relatively split decision caused unrest within the company.
Internationally, China has a 1/3 stake in the project and is growing increasingly unhappy with the lack of a decision by Britain. The clock is ticking away, and if Britain doesn’t make a decision soon the contracts could potentially be terminated, resulting in a loss of billions of dollars already invested in the project. “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out," a Chinese spokesperson said (4).
Conversely, there are benefits of this project, mainly for Britain. The two nuclear reactors would take 10 years to build, and ultimately supply 7 percent of Britain’s electricity. The project would create approximately 25,000 jobs within the country, as well as aiding Britain in its commitment to replace aged reactors with nuclear stations and cut emissions significantly. Each Megawatt-hour of electricity would cost 92.5 euros, more than doubling the current market price of power. Perhaps the biggest underlying positive impact from this project would be the mending of relationships with continental neighbors after the the UK’s decision to leave the EU last month. If completed, the plant would be the largest Franco-British industrial project in a generation (3).
Despite all these red flags, EDF’s share price recently rose eight percent and is currently trading at 11.88 euros. The potential returns on the Hinkley Point power plant could be significant and consistent, with current estimates predicting about nine percent if the plant stays true to the deadlines and budget, according to EDF CEO Jean-Bernard Levy.
If EDF and Britain can pull this off, it could provide momentum to other large scale projects such as high speed rail and boost funding for other safer, cleaner, and more efficient energy sources. It is a gamble that EDF believes will pay off in the long run.
Britain has announced that a final decision to give the green light for the project at Hinkley Point will come around early Autumn. All EDF can do now is sit back and wait as their company continues to struggle for survival.
(1) Corbet, Sylvie. "Energy Company EDF Approves Divisive UK Nuclear Power Plant." US News. U.S.News & World Report, 28 July 2016. Web. 30 July 2016.
(2) Ibid .
(3) Beaupuy, Francois De, Alex Morales, and Mark Deen. "U.K. Holds up $24 Billion Nuclear Plan after EDF Approval." Chicagotribune.com. N.p., 29 July 2016. Web. 30 July 2016.
(4) Gosden, Emily. "China Urges Go-ahead for Hinkley Point Nuclear Power Plant, as State Media Warn UK's 'suspicious Approach' May Deter Future Investment." The Telegraph. N.p., 1 Aug. 2016. Web. 2 Aug. 2016.
(5) Stacey, Kiran, and Andrew Ward. "EDF Chief Gave Board Two Days to Read Hinkley Point Deal." Financial Times. N.p., 1 Aug. 2016. Web. 2 Aug. 2016.
Image: © Joseph Golby | Dreamstime.com - <a href="https://www.dreamstime.com/stock-photo-hinkley-point-nuclear-power-station-somerset-uk-february-proposed-construction-site-new-image67435564#res14972580">Hinkley Point Nuclear Power Station Somerset, UK</a>