UK firm Centrica’s investors might not be happy about nuclear plans

Centrica faces big questions on nuclear despite Franco-British summit, Telegraph UK 18 Feb 12, David Cameron and Nicolas Sarkozy invoked the spirit of entente cordiale on Friday in Paris, reaffirming their countries’ commitment to building Britain’s new fleet of nuclear power plants. By Damian Reece, Head of Business 17 Feb 2012
There were supporting statements from blue-chip corporate names such as Rolls-Royce on this side of the English Channel and EDF and Areva on their side of la Manche. All was fusion.

But behind the political smiles lies an increasingly tense reality which throws into question everything the Coalition is trying to achieve in its National Policy Statement on energy, approved by Parliament in July.
The are several risks, none of which Friday’s Franco-British summit addressed.
The first is Sarkozy losing the French presidential elections being
held in April and May. That risk is extremely high and French
ambitions for spending on UK nuclear may look rather different under
Francois Hollande, the socialist challenger in poll position to oust
Sarkozy.
Investments in up to four new UK nuclear sites are planned by EDF
which in turn is 83pc owned by the French government. The spending
starts with Hinkley Point C, home to two new nukes, which will require
€10bn (£8bn).
Current EDF boss, Henri Proglio, is bosom pals with Sarkozy who got
him the job in the first place. Hollande can be expected to replace
Proglio with his own person whose views on overseas nuclear expansion
may be very different to Proglio’s.
Will France, supposedly sticking to eurozone austerity plans under
Hollande, want to invest €10bn in the UK when its own appetite for new
nuclear looks replete?
EDF, being a state controlled business, follows the same path in
credit ratings as the French government (down). Will it afford the
necessary cash, especially given a separate €10bn bill it must meet
for a nuclear spring clean at home post Fukushima? Its balance sheet
looks stretched.
There’s plenty of risk emanating from the UK too. There is still no
detail of how much nuclear investors, such as EDF, will get for the
power from their new plants. There is a promise of a guaranteed price
calculated through a complex instrument called a contract for
difference (you, dear reader, will end up underwriting the guarantee
through your bills to avoid accusations of state subsidy). But no one
knows what this price will be. When and how can this be communicated
to EDF so it can commit funds to start building in time for planned
switch on in 2018, a date that now looks fanciful.
EDF’s (junior) partner in the UK is Centrica, not owned by the
Government but by concerned shareholders who may well start to
question the company’s investment in nuclear plans which, if they
materialise at all, risk being late and less ambitious than before.
Centrica reveals 2011 results next week and, amid the usual hand
ringing about British Gas profits, a reassessment of its nuclear
future may be required by investors. Management might need to reassure
the City that its nuclear ambitions remain on track to create expected
returns.
I don’t have space to detail a similar set of worries about RWE and
EON, the German power companies which the Coalition are relying on to
build further nukes on Anglesey. Suffice it to say RWE’s shares have
slumped 60pc in five years (including a 37pc fall in the past 12
months) to leave its entire market value at just €19bn, tiny in terms
of the nuclear industry….
http://www.telegraph.co.uk/finance/comment/damianreece/9089887/Centrica-faces-big-questions-on-nuclear-despite-Franco-British-summit.html