EDF ratings downgraded, UK arm clarifies Hinkley cost

13 May 2016

Moody's Investors Service has downgraded to A2 from A1 the issuer and senior unsecured ratings of Électricité de France (EDF), outlook negative. The rationale for the negative outlook includes "the incremental risks associated with the Hinkley Point C (HPC) nuclear power station project in the UK, should it go ahead," Moody's said yesterday.  

Meanwhile EDF's UK subsidiary EDF Energy responded to media reports about the cost of HPC.

The rating action concludes the review Moody's initiated on 13 February and reflects its view that the EDF Group's action plan announced on 22 April "will not be sufficient to fully offset the pressures resulting from a low power price environment combined with a significant investment program".

Given its 84.9% ownership by the French government, EDF's A2 rating "continues to incorporate a two-notch uplift from its standalone credit quality or baseline credit assessment of baa1 based on the agency's estimate of a high degree of government support", Moody’s added.

The negative outlook also reflects the execution risk associated with certain elements of EDF's action plan, "notably the disposal of commodity-exposed activities", Moody’s said, and that the action plan "does not address the fundamental challenge faced by EDF, that is power prices at a level which currently does not allow the group to cover the required investments and earn a return on those".

Cost remains £18 billion

"The cost of the project is £18 billion in nominal terms. We have stated this in public many times and this has not changed," EDF Energy said. This £18 billion includes and has always included a provision for risks and contingencies, it said. If the project is delivered for less, the gain will be shared with customers as part of the contract-for-difference gain share mechanism the utility agreed with the UK government. Customers would not bear the cost of any overruns.

It added: "The total equity the two shareholders are committed to provide if necessary includes 15% of additional capacity amounting to £2.7 billion. This does not mean that we anticipate any additional costs beyond £18 billion. It simply reflects normal, prudent good practice for any construction project to know that the money would be available in the case of more extreme scenarios. We don't expect to use the additional 15% because we expect that Hinkley Point C will be on time and on budget at £18 billion."

Under a deal agreed last October, China General Nuclear will take a 33.5% stake in EDF Energy's £18 billion ($28 billion) project to construct HPC. In addition, the two companies will develop projects to build new plants at Sizewell in Suffolk and Bradwell in Essex, the latter using Chinese reactor technology. EDF's share in the project stands at 66.5%, but the company said it intends to offer other investors stakes in the project whilst retaining at least a 50% share itself.

Consisting of two European Pressurised Reactors, HPC will be the first new nuclear power station to be built in the UK in almost 20 years.

Final Investment Decision

EDF Energy also clarified media reports that suggest a final investment decision (FID) on the Hinkley project will be taken in September. A FID on the project had been expected at the end of last year and then this month.

An EDF Energy spokesman told World Nuclear News today: "We have not provided a date for FID, but have obviously also seen the speculation around 'September'". He added: "Our statement issued at the time of the announcement of the ongoing consultation with the French unions remains our position."

That 22 April statement announced confirmation of the significant recapitalisation of EDF agreed by the group's board that "makes it possible for EDF to proceed with its strategic investment program - including Hinkley Point C".

EDF said yesterday that the first unit of HPC will be operational 115 months after the FID. It has started a consultation on the project with the Central Works Committee - consisting of three French trade unions - and a FID will be made after that process has been completed, it added.

Researched and written
by World Nuclear News