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Last updated: October 10, 2010 7:42 pm
Constellation Energy’s supply of nuclear power from its joint venture with EDF of France could be under threat, after the US utility revealed it was pulling out of the $10bn project to build a reactor at its Calvert Cliffs site in Maryland.
Baltimore-based Constellation said it had been forced to withdraw because of the high cost of financial support from the US government. Its decision follows tensions between the two companies over a put option, agreed in 2008, which allows Constellation to sell gas and coal-fired power stations to EDF for up to $2bn. The news that its partner would no longer take part in building the first French-designed EPR – European pressurised reactor – in North America left EDF stunned.
The French group was considering its options after the news broke. The new reactor design is leading France’s international drive in the atomic energy sector, although the first projects in Finland and France have been hit by delays and cost overruns. People with knowledge of EDF’s position said the company was reviewing all its relationships with Constellation.
It was unclear whether Constellation’s decision to pull out meant that EDF would be unable to seek another partner to take the US group’s place in the project at Calvert Cliffs.
EDF, though, could attempt to exert pressure on its partner by using its right of veto in the joint venture that operates Constellation’s five reactors to call into question commercial contracts to supply the US utility with electricity, said the people familiar with the company’s position. This would be done if the contracts were found not to be in the best interests of the venture, they added.
Constellation’s 2009 accounts showed it had commitments to buy $4.3bn of power from the joint venture over the next four years. Constellation’s withdrawal from the Calvert Cliffs 3 project, estimated in the industry to cost $10bn, was revealed by a leak of a letter sent to the US department of energy on Friday. The company has been seeking a federal government guarantee for lending to finance the project, available under legislation signed in 2005.
However, under rules set by the Office of Management and Budget, the company was initially told it had to pay a fee of $880m, 11.6 per cent of the value of the loan it seeks to cover. Even after the terms were changed to reduce that amount, Constellation said it would still make the project uneconomic.
Responding to news of possible challenges to the nuclear power supply contracts, James Connaughton, Constellation’s vice-president for corporate affairs and policy, said: “There is a very clear set of foreign ownership and control standards associated with ownership of nuclear assets, and we and our partners are well aware of the requirements of that law.”
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