Centrica pulls out of UK's nuclear new build programme
Monday 04 February 2013
Centrica has decided to pull out of the UK's nuclear new build programme and will not take part in the construction of up to four new reactors, the firm announced today.
The British Gas-owned company acquired a 20% interest in French firm EDF Energy's eight nuclear power stations in the UK and an option for a 20% stake in the building of new power stations at Hinkley Point in Somerset and Sizewell in Suffolk.
Centrica said in a statement: "Centrica plc has taken the decision not to participate in the construction of up to four new European pressurised nuclear reactors in the UK."
The statement went on: "Having taken the decision not to proceed with the new nuclear investment, the group will launch a £500 million share repurchase programme, to return surplus capital to shareholders, which will be conducted over the next 12 months.
"With pre-development expenditure on the project approaching the agreed £1 billion cap, Centrica's decision not to proceed follows a detailed appraisal of the project. While there has been progress in a number of key project areas, particularly design and planning, there remains uncertainty about overall project costs and the construction schedule."
Centrica said its 20% share of the pre-development expenditure - around £200 million - will be written off as an exceptional cost in the group's 2012 results.
Centrica chief executive Sam Laidlaw said: "We believe that nuclear generation has a valuable role to play in a balanced UK energy mix. Centrica and EDF continue to enjoy a successful partnership in existing nuclear.
"However, since our initial investment, the anticipated project costs in new nuclear have increased and the construction timetable has extended by a number of years.
"These factors, in particular the lengthening timeframe for a return on the capital invested in a project of this scale, have led us to conclude that participation is not right for Centrica and our shareholders.
"In 2012 we invested over £2 billion in securing supplies of energy for the UK and where we see attractive returns we will continue to invest in Britain's energy future."
Centrica said its 20% interest in the eight existing nuclear power stations in the UK is unaffected by today's decision.
The company is due to present its preliminary financial results on February 27, when it will provide an update on strategy and investment plans.
Analysts believe the decision clears the way for Chinese investors to take over Centrica's involvement.
The news follows publication of a report by the Commons Public Accounts Committee which showed that the "enormous" legacy of nuclear waste at Sellafield in Cumbria has been allowed to build up, with the cost of decommissioning the site reaching £67.5 billion, with no indication of when the cost will stop rising.
Mr Laidlaw told a media briefing: "It is clear that both construction costs and timeline for build have increased significantly.
"There has been good progress on the ground but we remain uncertain about overall construction costs and timeline."
Mr Laidlaw said the decision did not have to lead to a delay in the building of new nuclear power stations.
"It will be a matter for EDF as to whether they choose to pick up our share or bring in a partner," he said.
The Fukushima disaster in Japan following the tsunami two years ago has had a "knock-on impact" on the schedule, said Mr Laidlaw.
He added that he still believed nuclear had a valuable role to play in the UK's energy mix, but investing in the new reactors would not be right for Centrica or its shareholders.
Gary Smith, national officer of the GMB union, said: "Since the state has to step in to guarantee prices for return on investment, why not go the whole hog and have fully accountable nationalised delivery, particularly in the nuclear sector?
"Much of money paid by UK households to heat their homes will be spent on components that will be built abroad unless there are major changes."
A Department of Energy and Climate Change spokesman said: "We are determined to make the UK a leading global destination for investment in new nuclear, which will play a key role in our future energy mix.
"We welcome EDF Energy's continued commitment and determination to take forward the Hinkley Point C project.
"The decision by Centrica reflects the company's investment priorities and is not a reflection on UK Government policy. The recent purchase of Horizon Nuclear Power by Hitachi is clear evidence of the attractiveness of the new nuclear market in the UK."
EDF said it respected Centrica's decision, adding: "EDF Energy was prepared for this decision and understands that the profile and scale of this investment may not meet Centrica's shareholders' current expectations and priorities.
"EDF Energy values the expertise Centrica has brought to the new nuclear project and the continuing partnership between the two companies in its existing nuclear business."
Chief executive Vincent de Rivaz said: "The new nuclear project at Hinkley Point C is making good and continuous progress. EDF Energy is working with Government to agree a price for the electricity at Hinkley Point C which will be fair and balanced for UK consumers and investors."
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