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Financial Analyst on French Nuclear: “It Looks Really Bad.”

Wednesday 5 December 2012

The nuclear industry in France has suffered two major blows in the last few days. Firstly, on 3 December 2012, Électricité de France (EDF) announced that its only new build project at Flamanville (FL3) was now going to cost €8.5 billion to complete, as EDF added an additional €2 billion to the construction price of the single EPR reactor. The last cost revision by EDF was in July 2011. In 2005, when the final investment decision was taken, EDF estimated that it would cost €4 Bn (in €2012). Two years earlier, in 2003, the Ministry of Industry had calculated an investment cost of €2 billion (in €2012) (see here for background). In other words, even taking into account inflation, the current cost estimate corresponds to 4.5 times the government evaluation in 2003 and 2.5 times the EDF estimate of 2005. Just one day after the latest EPR cost adjustment, EDF’s only partner in the project, utility ENEL of Italy, announced that it was abandoning its 12.5% stake. Nomura, a leading financial services group, said of the decision “given ENEL’s need to reduce debt, a difficult outlook for its generation business in Italy and Spain, cost overruns at Flamanville, and the diminished strategic relevance of the overall partnership following the outcome of Italy’s anti-nuke referendum in June 2011, we see this as a sensible move on their part”. However, for EDF, there was no such reassurances, with UBS analyst Per Lekander stating: “In a way, the last 24 hours have killed French nuclear finally because the cost makes it totally impossible to export and now you have one of the few partners actively withdrawing; it looks really bad.” Credit rating Agency Moody’s changed the outlook on EDF’s Aa3 rating from stable to negative. Moody’s also changed the A3 rating of the group’s wholly owned UK subsidiaries EDF Energy and EDF Trading to negative. That will, no doubt, raise considerable attention in the UK, just days after the introduction of the Energy Bill.

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