October 21, 2015 / 1:46 PM / 4 years ago

China's CGN signs $9 bln British nuclear deal in return for own project

LONDON/PARIS (Reuters) - China has agreed to invest 6 billion pounds ($9 billion) in EDF’s (EDF.PA) Hinkley Point nuclear project, Britain’s first new nuclear plant in a generation, in return for help to bring its own nuclear technology to the West in a subsequent project.

Roads cut through the site where EDF Energy's Hinkley Point C nuclear power station will be constructed in Bridgwater, southwest England October 24, 2013. REUTERS/Suzanne Plunkett

Chinese nuclear company CGN will finance 33.5 percent of the 18 billion pound project, one of the world’s costliest nuclear power stations, which Britain said it needs to replace ageing reactors and polluting coal plants to ensure the lights stay on.

The deal, announced during Chinese President Xi Jinping’s state visit to Britain, is a boost for French nuclear plant operator EDF and reactor maker Areva AREVA.PA which are under pressure to prove their reactors can be built on time and on budget after other projects in Europe were billions of euros over budget and years behind schedule.

“This deal confirms the leadership of EDF and the way we are able to attract investors as demanding as the Chinese,” Vincent de Rivaz, head of EDF’s British unit EDF Energy told reporters.

The project at Hinkley Point will be the first new nuclear plant built in the European Union since 2011 when Japan’s Fukushima reactor meltdown sent shockwaves through the world.

As part of the agreement, EDF will help CGN gain a licence to build its own nuclear reactor, Hualong, in Britain, whose nuclear regulatory regime is seen as one of the most stringent in the world.

CGN has also agreed to take a 20 percent stake in EDF’s Sizewell nuclear project in eastern England. EDF said final sanctioning of this project was 3-4 years away.

For China, keen to establish itself as an exporter of nuclear expertise, successfully building a plant in Britain will open the door to other markets.

Regulatory changes following the Fukushima disaster and delays in inking Chinese investment have already pushed back Hinkley Point C’s start-up date to 2025, two years later than the date announced in 2013 when Chinese participation was first agreed in principle.

EDF said it would make its final investment decision on Hinkley Point in coming weeks. EDF and CGN will now draw up some 70 separate contracts containing about 5,000 pages.

At 9 billion pounds apiece, or 12.25 billion euros, the Hinkley Point EPR reactors will cost nearly two billion euros more than the long-delayed reactor EDF is building in Flamanville, France, whose cost was revised to 10.5 billion euros last month, from an initial 3 billion.

“The electricity coming out of Hinkley is going to be pretty expensive under any future scenarios you can think of,” said Peter Atherton, utilities equity analyst at Jefferies.

Others are concerned about Chinese access to critical UK infrastructure. “We don’t want a foreign power being able to quite literally turn off the lights from some remote location,” said Alan Woodward, Visiting Professor of Computing at the University of Surrey.

EDF Chief Executive Jean-Bernard Levy said EDF will keep majority control of the Hinkley Point project, but would look for another investor to take a stake of up to 15 percent.

For Britain, progress on Hinkley Point means its nuclear new build programme is taking shape.

“The Government will support new nuclear power stations. Hinkley Point C will kick start this and is expected to be followed by more nuclear power stations,” said Britain’s Energy Minister, Amber Rudd, in a statement.

The government has put a price support mechanism in place through which nuclear, and other forms of power production, are guaranteed a minimum electricity sale price, also known as a contract for difference (CfD).

The European Commission’s approval of Hinkley Point’s minimum price of 92.5 pounds per megawatt-hour, more than twice the current market price, has been challenged by Austria at the European Court of Justice.

($1 = 0.6475 pounds)

Additional reporting by Susanna Twidale; Editing by Greg Mahlich and David Evans

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