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Sell EDF shares, because of Hinkley nuclear costs – says leading broker

cliff-money-nuclearBroker tells investors to sell EDF shares because of Hinkley Point costs,  http://www.theguardian.com/business/2015/oct/22/broker-tells-investors-sell-edf-shares-hinkley-point-costs   Guardian, , 22 Oct 15, 

Investec Securities has ‘long-term concerns’ about financial strain the £18bn nuclear project will put the French energy group under.A leading City broker has called on investors to sell their shares in EDF, saying it has “long-term concerns” about the financial stresses on the French energy group from the £18bn Hinkley Point C nuclear project in Somerset.

The sell note from Investec Securities comes a day after EDF signed a deal with China General Nuclear Corporation and said it would start work within weeks on the UK’s first new nuclear plant for 20 years.

The government has finally admitted what had been denied for years – that the contract for difference aid mechanism for the power station is effectively a state subsidy.

The fine print of a formal document from the Department of Energy and Climate Change said: “The government confirms that it is not continuing the ‘no public subsidy policy’ of the previous administration.”

Coalition ministers always argued that any new nuclear plants would only be constructed if they could be done without subsidy.

“A long-dated project is the last thing that EDF needs, given the existing pressures on its balance sheet. Unless favourable disposals materialise, we fear the dividend will be a casualty,” said a research note from Harold Hutchison, utility analyst with Investec.

EDF, which is largely owned by the French state, has still not taken an irreversible investment decision or received the final documentation from the government on the controversial subsidy system.

But the state visit to Britain of the Chinese president, Xi Jinping, was used as a platform to effectively launch the Hinkley scheme that EDF now says will be funded by debt and not underwritten by UK government guarantees.

Investec believes this will be difficult for EDF at a time when a new French energy law means the company must close some of its power stations while being encouraged to bail out its troubled engineering partner, Areva, through a merger.

EDF is also under financial stress because a new nuclear plant at Flamanville in Normandy, north-west France, has run far over budget and been hit by delays.

Opinion is polarised about whether Hinkley will provide useful baseload low carbon power or is a white elephant project that is far too expensive and stands little chance of being constructed on time. The first of two reactors is scheduled to open in 2025 and in theory could provide 7% of the UK’s electricity 24 hours a day for 35 years.

October 24, 2015 - Posted by | business and costs, France, UK

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