UK nuclear programme is at risk in Moody’s credit alert

Britain’s nuclear programme faces a new threat after the revelation that ratings agencies could downgrade French energy giant EDF and British Gas owner  Centrica if they decide to build four reactors. A credit downgrade would be highly likely to spark a confrontation with shareholders because it would make it more expensive for the companies to borrow and could undermine the share price.

US-based Moody’s says building nuclear plants is risky because of the huge costs and uncertainties over future power prices. Britain’s nuclear programme is likely to cost EDF and Centrica £24 billion together. The latest threat comes as senior executives at Centrica are having growing doubts about whether to give the go-ahead to a £5 billion nuclear investment.

Their anxiety stems from the fact that the Government and Centrica are far apart in their estimates of the level of price guarantees for providing nuclear-generated energy.

Failure by Centrica to invest would threaten the whole British nuclear programme, especially as it follows the decision of German energy companies RWE and Eon to pull the  plug on building nuclear plants in Anglesey and Gloucestershire.

Britain faces power shortfall that could affect 5m homes after German energy giants pull plug on £10bn nuclear deal

EDF would then be left to shoulder the financial burden itself and it is not clear whether the French government, which may be anti-nuclear if Francois Hollande wins this month’s presidential election, would be  prepared to guarantee huge loans to subsidise Britain’s nuclear industry.

Sources say that if Centrica pulls out because it cannot make the project finances work, then it would be clear that French taxpayers would be subsidising British energy users were the largely State-owned EDF to go ahead.

While formal negotiations have not started, early indications show that both parties ‘are not on the same book’ on pricing for future supplies, say senior executives.

Companies need a guarantee that prices will cover costs over at least 30 years. Experts reckon the price guarantee or subsidy would be worth about £2 billion a year or £60 billion over 30 years.

The Government and the power companies in theory hold formal negotiations to decide the price at which they can sell electricity from non-fossil fuel sources.

Once a level has been agreed, the companies are guaranteed a subsidy from the Government if energy prices slump. However, if prices soar and they make big profits, they must pay back the difference. In either case, power companies need the certainty of regular revenue.

Nuclear expert Professor Tom Burke said: ‘Centrica has never looked like a plausible partner for EDF on nuclear.

‘Its market capitalisation is about £15 billion. It is unclear how it could ever have taken up 20 per cent of a £25  billion project.’

via UK nuclear programme is at risk in Moody¿s credit alert | This is Money.

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