GDF Suez's nuclear reservations hit government energy policy

Monday, April 16, 2012

The government's energy policy has suffered a fresh blow when GDF Suez, the French firm behind plans to build a new nuclear plant in Cumbria, said it needed more financial incentives if it was to proceed.

Gérard Mestrallet, chairman and chief executive of GDF, said he wanted talks with the government about a fixed or minimum price for producing nuclear energy: "We are, with our partners, going to take a decision in 2015 [on building a new plant at Sellafield]. Today it is very difficult to invest in a nuclear power plant without clear visibility."

The government has promised to provide a fixed carbon price to make nuclear investment more attractive, but Mestrallet said this was "not enough and something is missing".

It was difficult to invest in a deregulated energy market, such as that in the UK, without a guaranteed minimum or fixed price specifically for electricity generated by nuclear power, he argued.

The comments will send a shockwave through Whitehall because they come just weeks after the German utilities RWE and E.ON said they would not proceed with plans to build new nuclear plants at Wylfa in Wales and Oldbury in Gloucestershire.

The German firms run the Horizon joint venture in Britain. They cited concerns about financing the projects as well as costs associated with Germany's abandonment of nuclear power in the aftermath of the Fukushima accident in Japan. This would leave only GDF and the major French electricity producer EDF in the race to build new atomic plants in the UK.

GDF has its own joint venture with Iberdrola of Spain called NuGen which insisted after the E.ON and RWE announcement that it remained "committed" to its planned 3.6 gigawatt plant at Sellafield.

But Mestrallet's words make clear that GDF will only proceed if the British government makes further concessions to nuclear, something industry critics feared would happen.

The GDF warning came as the French grip on Britain's energy infrastructure tightened with a plan to take full control of International Power (IP) for around £7bn.

IP operates key power stations around the country including the gas-fired plant at Satend near Hull and a coal-fired facility at Rugely, in Staffordshire, as well as many others abroad.

The move could exacerbate concerns about the undue influence of companies partly owned by the French state such as EDF, Areva and GDF – which have already big stakes in the British energy market. The French government is the biggest shareholder in GDF with 36%.

GDF, the world's largest independent power producer, bought 70% of IP in 2010, but has now agreed to buy the remaining stake for 418p a share.

Mestrallet said the acquisition of the minority stake in IP constituted a major step that would "allow the group to fully capture growth in fast growing markets".

He denied further control by GDF of the UK business could be anything but good and said EDF was a "competitor" not a French state collaborator.

An earlier offer from GDF at 390p a share had been resisted by the British company's board but Sir Neville Sims, chairman of the committee of independent directors at IP, said he had no difficulty recommending the new offer.

It represented a price that "fairly reflects the company's position in international power generation markets and its inherent growth potential," he said.

The independent directors will recommend that shareholders vote in favour of the deal at the annual meeting on 15 May. The deal would be the second biggest this year after Glencore International's offer for mining group Xstrata.

Angelos Anastasiou, a utility analyst with Investec Securities, said this was the right price for a business of this sort, adding: "We see the offer progressing smoothly to its conclusion."

But the acquisition by GDF follows the purchase by EDF of nuclear operator British Energy and the growing influence of French nuclear engineering firm, Areva.

Jonathon Porritt, director of sustainability group Forum for the Future, recently expressed deep misgivings about the situation. He said in the Guardian last month: "UK energy policy is being manipulated and subverted to make it possible for French nuclear power companies (EDF and Areva) to start building four new reactors in the UK – two at Hinkley Point in Somerset and two at Sizewell in Suffolk."

IP runs six UK power stations including some wind farms. It has recently reduced the power output from a Teesside gas plant from 1,875 megawatts to 45MW, describing the commercial environment in Britain as "challenging".

But of particular interest to GDF is IP's 6,600-MW building programme abroad, mostly in developing countries. Almost three-quarters of recent operating income has come from nations like Brazil, Indonesia and Saudi Arabia.

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