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EDF turmoil exposes Britain's reliance on Hinkley nuclear plan

LONDON (Reuters) - Management upheaval at EDF EDF.PA has exposed Britain's reliance on the French energy group's ability to deliver a planned 18 billion pound nuclear power plant in southwest England.

The logo of France's state-owned electricity company EDF is seen on the company tower at La Defense business and financial district in Courbevoie near Paris, France, March 2, 2016. REUTERS/Jacky Naegelen

EDF CFO Thomas Piquemal quit on Monday in protest over the balance sheet risk posed by the Hinkley Point C project, one of a series of expensive challenges that the debt-laden and state-controlled group faces..

EDF and the British and French governments are saying the project remains on track, but turmoil at the top of EDF could mean a further delay to a plan that is already two years behind schedule.

For Britain, a slippage beyond 2025 would threaten the security of electricity supply to its millions of households as alternatives are few and far between.

“This reiterates the need for a Plan B,” said Tim Yeo, former Conservative chairman of parliament’s Energy and Climate Change select committee.

Hinkley Point C is forecast to provide around seven percent of Britain’s electricity needs when it is fully operational.

“A further delay would be a step back for the UK government because nuclear is one of the three pillars of its long-term energy strategy,” said Coralie Laurencin, associate director of European power at consultancy IHS Energy.

“Having this first new reactor taking so much time is not helpful.”

Britain has two alternatives it can consider: placing hopes on other new nuclear plants or incentivizing the construction of gas-fired power plants. The development of large-scale renewables, such as offshore wind, is the other main plank of energy policy as Britain tries to cut greenhouse gas emissions.

ADDITIONAL NUCLEAR PROJECTS

Two other nuclear groups are planning to build plants in Britain -- NuGen, a joint venture between Toshiba's 6502.T Westinghouse and France's Engie ENGIE.PA, and Hitachi's 6501.T Horizon.

NuGen has set its sights on a start-up of its Moorside nuclear plant in northwest England for 2024, earlier than Hinkley Point C. Horizon said it was targeting a start-up in the first half of the 2020s of its Wylfa plant in Wales.

Together, these two projects will have an installed capacity of 6.3 gigawatts (GW) once fully operational, compared with 3.2 GW at Hinkley Point C.

However, these plans need to clear a number of hurdles which project leader EDF has already overcome for Hinkley Point C.

These include regulatory approval for the construction of their respective nuclear reactor designs and receiving state aid clearance from the European Commission for an electricity strike price yet to be agreed with the British government.

Britain agreed in October 2013 to guarantee EDF a price of 92.5 pounds per megawatt-hour (MWh) for electricity produced at Hinkley Point C, around three times the current market price.

When Hinkley Point was announced in 2013, nuclear reactor maker Areva AREVA.PA was meant to take a 10 percent stake in the project. EDF has since initiated the takeover of Areva's struggling reactor business, leaving the French energy giant with a hefty 66.5 percent majority stake.

China’s General Nuclear Corporation (CGN) has agreed to buy into one third of the project.

The departure of CFO Piquemal was linked to his unwillingness to take on too much risk for a group that has net debt of over 37 billion euros (£29 billion), according to a source close to the matter.

“Piquemal was not the only one in the executive committee to have doubts about Hinkley Point C,” the source said.

GAS-FIRED PLANTS

Experts say gas-fired power plants are an obvious alternative to nuclear because of their relatively short construction time and ability to provide flexible power generation.

“It is likely that gas-fired generation will need to pick up the lion’s share of any shortfall,” said Andy Houston, senior principal at energy consultancy Poyry.

Britain has tried to support the construction of new gas-fired power plants through the introduction of a back-up capacity market.

However, prices from recent capacity auctions have so far failed to encourage power plant developers to build large amounts of new gas plants.

The government would need to make terms more attractive to see more gas-fired power plants taking shape but it is legally prevented from favouring one thermal technology over another.

Peter Osbaldstone, research director for European power at consultancy Wood Mackenzie, warned that bridging nuclear power capacity with gas-fired power plants would mean an increase in carbon emissions over current estimates.

Britain has made a legally binding commitment to reduce greenhouse gas emissions by at least 80 percent from a 1990 baseline by 2050.

That leaves the British government with little choice but to count on the successful delivery of Hinkley Point C.

“Whitehall is still firmly behind it,” said a source close to the government’s thinking on nuclear energy.

Additional reporting by Geert de Clerq in Paris; Editing by Keith Weir

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