Ed Crooks The revival of nuclear power gathers pace in Europe, but will a free market finance it?

Monday’s deal for EDF to sell a 20 per cent stake in British Energy, the nuclear generator, to Centrica, which is Britain’s biggest domestic energy supplier, marked an important step forward in the revival of nuclear power in Europe.

While the US debates the controversial plan for a nuclear waste repositary at Yucca Mountain in Nevada, European countries including the UK, Italy and France are pressing ahead with plans for new plants, even though they often don’t know what they are going to do with their waste.

This progress in Europe has been welcomed by supporters of nuclear power as evidence that nuclear power is an investment opportunity that interests many profit-driven businesses, and that the commercial partnerships that the nuclear industry needs are coming together.

However, there is still a missing piece of the jigsaw.

Pierre Gadonneix, EDF’s chief executive, talks a good game. He wants his company to be “the leader of the nuclear revival worldwide”, he says, and he has been doing deals in the US, in China, and in several other countries to make that happen. In the UK alone, he plans to lead an investment programme worth up to €20bn to build four of the new French-designed European pressurised water reactors. The deal with Centrica, bringing it in as a partner in up to 20 per cent of that investment, will help to get those plants built.

EDF says everything is still on track for it to hit its target of having the UK’s first new reactor for 25 years on stream by the end of 2017. Safety approvals are under way, the planning system has been reformed to help push through nationally important infrastructure projects such as new reactors, and EDF is putting its UK new build team together.

The big problem remaining, however, is that the economics of new nuclear are still not clear. Vincent de Rivaz, EDF’s chief executive in the UK, has often protested that nuclear power will not need government support. He likes to ask: “Look at my business plan and tell me, where is the line for government subsidy? It is not there.”

The British government takes the same view: a free electricity market, supported by the support for low-carbon electricity provided by the EU’s emissions trading scheme, will be sufficient to bring forward that huge investment in new reactors.

Yet without support of some kind, it is hard to imagine private sector investors – or indeed the French government, EDF’s 85 per cent shareholder – wanting invest those tens of billions that will be needed.

GDF Suez and Total have invested in EDF’s new reactor in France at Penly, but they are, of course, both French – and GDF Suez is part publicly owned. Enel has also invested in the other new reactor, now under construction at Flamanville, but it has particular reasons for wanting to gain expertise, to begin Italy’s nuclear revival after a 25-year hiatus.

Nuclear plants are not only expensive, but the costs can be difficult to predict as the Areva plant being built in Finland demonstrated, and the industry has taken note of this example. Revenues are also uncertain over the 40 to 60 year life of a plant, and the prospect of a future government with an anti-nuclear stance also makes investors nervous.

Renewables and now clean coal have been given their own support mechanisms: guaranteed feed-in tariffs or other special subsidy regimes.

The question is: can new nuclear investment, backed by the private sector, go ahead without similar financial support?

Related stories:

EDF open to British Energy deals (FT, 11/05/09)
Finland’s symbol of resurrection becomes showcase for hassles, delays and overruns
(FT, 03/11/09)