Tensions inside EDF over its plans to build a flagship nuclear power station in the UK were laid bare on Monday, after the finance director quit his job in protest and claimed the project could threaten the company’s future.
Thomas Piquemal’s dramatic exit highlights how a number of senior executives at the French state-controlled utility have long wanted to either delay the £18bn Hinkley Point C project in Somerset or scrap it completely. They say the plans look too risky for a group that is grappling with difficult European markets and a large debt load.
But Jean-Bernard Lévy, EDF’s chief executive, is determined to push ahead with Hinkley, and has the backing of the French and UK governments. A final investment decision by EDF’s board on the project could come as early as next month.
Mr Piquemal, who joined EDF six years ago, quit on Thursday after a strong disagreement with Mr Lévy.
One person familiar with Mr Piquemal’s thinking said: “He could not in good conscience remain at the company when it was pursuing a strategy [in pushing ahead with Hinkley Point C] that put the entire company at risk.”
Mr Piquemal made no public comment, but he is not the only EDF insider to have spoken out against Hinkley. Another board member, who declined to be identified, told the Financial Times that the company “risked everything” and that there were a number of directors concerned about the dangers of the project.
The CFE-CGC union, which has a seat on EDF’s board, also said last month that the Hinkley project could “put EDF in danger”.
There are two main reasons for the concerns. Firstly, the reactor technology due to be used at Hinkley — the so-called European Pressurised Reactor — is unproven, and has been beset by problems elsewhere on the continent.
An EPR power station being built by a consortium led by France’s Areva in Finland — the first European country to order the technology — is currently nine years behind schedule and more than €5.2bn over budget. Meanwhile, an EDF-led EPR project at Flamanville in France is six years late and €7.2bn over budget.
The concern is therefore that, while the Hinkley project may be profitable if all goes according to plan, the risks of multibillion-euro construction delays are significant and could put the company under severe financial pressure.
The second is that EDF is already in a weakened state. Wholesale electricity prices in Europe have fallen sharply over the past year, because they are linked to the value of crude oil. Meanwhile, the opening up of the French market to competition has eroded EDF’s once near-monopoly status.
Shares in the company, which fell 7 per cent on Monday, have more than halved over the past year. EDF borrows money every year just to pay its dividend, and the group’s €37bn of net debt dwarfs its €21bn market capitalisation.
“In isolation, the Hinkley project may not be a terrible idea,” said Martin Young, analyst at RBC Capital Markets. “But if you have not got the money and you have problems at home you should not bet a whole company on a project of this magnitude.”
Mr Piquemal suggested that EDF delay any final investment decision on Hinkley for three years, according to people with knowledge of the conversation.
By this point the new reactor in Flamanville should be connected to the electricity grid, giving EDF a clearer understanding of the construction risks involved with the EPR technology. The company could also use the time to sell assets, as well as integrate the reactor business of Areva, which EDF is due to do under rescue plans for the rival nuclear group.
But the chances of this three year delay happening are unlikely, in spite of the internal tensions at EDF.
The French and UK governments on Monday reiterated their support for Hinkley.
“We renew our full support for the Hinkley Point project,” said Emmanuel Macron, the French economy minister. “We continue to fully support the project,” said a spokesman for David Cameron, UK prime minister.
A statement by Mr Levy was also clear. “With the support of its shareholder, the state, EDF can confirm that it is looking to invest in two reactors at Hinkley Point [C],” he said, adding it would happen in the “near future”.
There are three main reasons for the French government’s support, according to people familiar with the situation, which go beyond the financial and into the strategic.
First, Paris believes that Hinkley will ultimately be profitable for EDF, which has a 66.5 per cent stake in the project, given price guarantees agreed with the UK government on the electricity supplied by the nuclear power station.
Second, the project is important for France’s nuclear industry, after the 2011 Fukushima disaster reduced international demand for new reactors.
Third, France needs export orders to maintain its competence in the nuclear sector until the time when it has to renew its own fleet of 58 reactors, which provide two-thirds of the country’s electricity.
EDF faces an estimated €55bn bill in the coming decade just to increase the life expectancy of the 58 nuclear power stations from their current 40 years to 50. It requires the expertise to do that and then eventually to build new ones, and Hinkley is key to this.
CGN, the Chinese nuclear group that has a 33.5 per cent stake in Hinkley, also renewed its support for the project.
Zheng Dongshan, CGN’s senior vice-president, said EDF had informed the Chinese company of Mr Piquemal’s resignation, adding: “We fully support this project and we are committing our full efforts to it.”
Turmoil over Hinkley could, however, provide an opening for China. One diplomat said EDF’s hesitation could be as an opportunity for CGN to accelerate its European strategy.
CGN hopes to build a reactor at the EDF’s Bradwell site in the UK using Chinese company’s Hualong One technology. If the EPR technology at Hinkley became a fiasco, it might strengthen CGN’s case.
Additional reporting by Kiran Stacey, Jim Pickard and Lucy Hornby
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