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Nuclear Energy Plans Face Meltdown As City Warns Of Cost Explosion

Centrica is being urged by the City to withdraw from a £4bn commitment to build new nuclear power stations in partnership with Electricité de France (EDF) amid soaring costs and delays at a prototype reactor at Flamanville in France.

The call comes days before the company will reignite the row over high domestic energy prices by reporting six-monthly operating profits at its British Gas Residential Energy division of £300m even before its latest price rises.

Meanwhile, a House of Commons report out on Monday demands that energy companies found guilty of mis-selling their products on the doorstep and elsewhere should pay compensation.

Centrica should “not touch with a barge pole” the new nuclear build (NNB) joint venture with EDF to build four new plants in Britain, argues Lakis Athanasiou, utilities analyst with Evolution Securities.

“Centrica is a minority holder in a technology in which it has no institutional understanding, and where, as emphasised by Flamanville, construction risk is notorious. Centrica should not progress new nuclear further, particularly if [the] government is unwilling to take construction risk,” he says.

The Evolution view reinforces concerns expressed by other investment specialists such as Citigroup, which has previously questioned the economics of building new nuclear plants. It is a blow to EDF and the government, which are both keen to see ageing power stations replaced from a source that used to provide almost a quarter of Britain’s electricity.

EDF, mainly owned by the French state and the operator of dozens of atomic plants in its home territory, revealed last week that the cost of constructing the new power station in Normandy had almost doubled since its original budget. The building work has been hit by problems including accidents and the need for changes in the plant’s construction after the explosion at the Fukushima plant in Japan, which was hit by the tsunami in March. It is now running four years behind schedule.

Vincent de Rivaz, the chief executive of EDF in Britain, has admitted the schedule for opening new plants in the UK by 2018 is slipping but denies this is a delay. He says the company is just a “taking stock”.

The nuclear industry has a poor record of cost-overruns, once tracked in a study by Paul Brown, a visiting fellow at Cambridge university, and published under the title Voodoo Economics.

Evolution Securities expects Centrica to show a slight dip in overall group operating profits to about £1.3bn, with its residential business showing profits down by almost half from £585m. Athanasiou says that without the 18% and 16% rises in gas and electricity prices announced recently, the company would have seen British Gas Residential Energy fall into a small loss.

But that will do little to assuage consumer groups, who have been calling for widespread competition investigations into the actions of the big six power suppliers, which include British Gas, Scottish and Southern Energy and EDF.

The energy and climate change select committee will unveil a report on Monday calling for widespread action by the regulator, Ofgem, to ensure abuses are curbed. The committee is concerned that customers may be pressured into switching supplier on the doorstep when confronted with an array of complex tariffs and a hard sell. Figures from Ofgem suggest that up to 40% of consumers who switch do not end up with a better deal.

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