Crisis situation at EDF. The Executive Director of EDF responsible for finance, Thomas Thornton, presented last week his resignation to Jean-Bernard Lévy, CEO of the group, did said Sunday evening. The cause: a disagreement over the short-term feasibility of the controversial project to build two EPR nuclear reactors at Hinkley Point. Back on the eight questions posed by this resignation and the proposed Hinkley Point.
Why EDF CFO Thomas Thornton leave?
This is a “disagreement” with the CEO of EDF, Jean-Bernard Lévy, the brainchild of two English Hinkley Point EPR explains departure Thomas Thornton surprise. CFO pleaded for weeks to secure the financing plan of the proposed £ 18 billion (in current cost 23.3 billion), including EDF should take 66.5%. For the financial conditions of the project and EDF’s economic environment has deteriorated since the project was announced in autumn 2013. Thomas Thornton wanted to include the state finds a replacement for Areva, which was to take 10% project.
EDF sees further constraints multiply: apart from the renewed activity of Areva reactors and the end of regulated tariffs for businesses (which has lost 25 points to EDF market share), the fall in wholesale electricity prices threaten margins from 2017. Thomas Thornton called also to establish a new economic regulation of nuclear power. “This resignation is a major event that is based on objective differences of views, it is not a thwarted ambitions Account” , advanced administrator. The stock has also closed in fall of 6.73% on Monday.
On the form, the publicized departure of Thomas Thornton is perceived within the bodyguard of Jean-Bernard Lévy, as an offense inelegant. Some argue that the output of the CAC 40 EDF this fall weakened the CFO. Thomas Thornton has the support of unions and leaders of the group. “This is the best CFO EDF had been” , a top executive judge. Thomas Thornton arrived in the wake of Henri Proglio in 2010 with an atypical profile for EDF: former investment banker, highly paid, and surrounded by a team of culturally distant enough financial standards of the young electrician <. / p>
What is the interest of the Hinkley Point project for EDF?
When EDF bought British Energy in 2009 it was with the objective to build new reactors are to replace part of the British fleet (15 reactors operated by EDF Energy). The planned construction of two EPR reactors on the Hinkley Point site (southwest England) should enable EDF to bridge, industrially, with the renewal of EDF’s nuclear fleet in France. EDF then plans to build two copies of the Sizewell (West of England).
The British project also allows to test a new business model for the nuclear industry: the European Commission approved a financing guarantees to EDF selling price of electricity produced, for thirty-five years. This is the principle of “contract for difference”: whatever the level of the electricity market price, the price is guaranteed for EDF. A model that is already working to develop solar and wind power, and that EDF would like to see applied to its investments for the extension of the operating life of the French fleet. For EDF, the contract with London also draws a Franco-British axis pro-nuclear, which is rare in Europe.
Finally, EDF is betting on increased cooperation with its Chinese partner, CGN, which must provide 33.5% of Hinkley Point funding. According to one expert dossier, “There were three or four subjects under discussion there fifteen days, it remains no more than one or two” . This turns, particularly around intellectual property rights attached to Hualong, a Chinese reactor that EDF is ready to help certify Bradwell, one of EDF Energy sites.
the Hinkley Point project can he stop?
“ I hope this will shake the tree, but I ‘m not sure “, says one director. EDF must formally make a final investment decision (FID) who commit definitively on the project. It may therefore fall further, but no sign accredits this hypothesis: first to comment EDF has appointed Xavier Girre as a substitute (provisionally) Thomas Santos, on Monday morning. “The state, as widely majority shareholder, is in full support of the management team,” , said Minister of Economy, Emmanuel Macron. “We renew our full support to the project “ Hinkley Point, which will be ” very profitable over the next thirty years . ”
Jean-Bernard Lévy was also recalled in a statement that EDF was intended to “pronounce the final investment decision in the near future,” . “We continue to fully support the project” , hammered a spokesman for the British Prime Minister, David Cameron. Rest the vote on the Board of Directors when the investment decision will be presented (probably in April). Of the 18 council members, 6 representatives of employees consider the project very – too – risky. Jean-Bernard Lévy and representatives of the state are very favorable contrast. Are independent directors: Laurence Parisot, Colette Lewiner, Philippe Crouzet, Bruno Lafont … In January, an audit committee was devoted to a review of the risks of the project, following the report of Yannick d’Escatha. A board of directors to be held this Tuesday, March 8, preceded by a strategic committee.
How is the project on the ground?
a Hinkley Point, on the west coast of England, the site of the EPR is stopped for nearly a year, pending the final investment decision. On a plot of 175 hectares in Somerset, face Wales, EDF was content to perform some preparatory work. One of the four cement that will be needed is completed. And the French firm continues development around the site (special roads and roundabouts have been built to face the coming traffic). British unions have expressed their impatience last week, after the Franco-British summit, where Francois Hollande and David Cameron renewed their support to the project. EDF “no excuse” to delay the final investment decision, said the Unite union, recalling that “thousands of qualified and well paid jobs” were involved. “It’s time to unpack the boots and shovels and start the work,” estimated the head of the energy sector, Kevin Coyne.
What is the level of concern within EDF?
launching a right to economic warning in December, the central works council of EDF had pointed the risks of Hinkley Point project, among others (opening to competition of hydro, end of regulated tariffs, closure of thermal power plants, etc.). GSC has also strongly criticized the industrial and financial risks of the project. Nobody is hostile in principle, but unions fear qu’Hinkley Point is “the project too.” Some suggest to postpone the investment decision of several years, the time to wait EPR New Model, which will be optimized and serve to test the reactor which should be based on the renewal of the french fleet. Unions fear that the British project to be funded include a partial sale of RTE, the electricity transmission network, a 100% subsidiary of EDF.
Apart from unions, “The subject has been discussed for several months internally at different levels” , recognizes a senior executive. The subject is regularly discussed in the Executive Committee, some advocating, “ideally” a two-year delay, the time to complete the construction of the EPR at Flamanville and Taishan to the square Areva and see the market price go up. Some leaders want more reassuring. “A project is the continuous adaptation. There have been a lot of audits, refocusing, improvements in the project management mode … “ tip one of them. And others consider that industrial vision must take precedence over financial issues.
EDF Why does he not find more partners?
in February 2013, EDF had already lost its British partner Centrica, which had an option to take 20% of the two EPR construction project at Hinkley Point and two others on the Sizewell (west of England). In autumn 2013, when the group reached an agreement in principle with the British government on the project, the roundtable provided that EDF takes 40 to 50% of the consortium, in Areva holds 10% (for “align the interests” of the customer and the supplier, at the express request of EDF and Areva against the wish), and Chinese players CGN CNNC invest up to 30 to 40%. Third party investors were invited to apply for the balance, and contacts had been established particularly in the Middle East, Saudi Arabia reflective to develop its own nuclear industry.
Following the financial collapse of Areva and new delays on the EPR Flamanville (Manche), EDF was left majority on the project in the fall of 2015. “for others who observe the delay announcements and additional cost on the EPR under construction, it is difficult to engage” , recognized in September Jean-Bernard Lévy, in an interview with the “echoes”. Chinese CGN, also capped its investment to 33.5% of the project. In the medium term, EDF does not rule out opening the capital to other investors that CGN, but he will judge all manner majority, which will require it to consolidate the project in its accounts.
The financial cost is too heavy
HPC – for Hinkley Point C – representing in 2018 some 60% of equity EDF, as an expert dossier: this summary, a number, the stake of the British project, and therefore the need to ensure a solid financial plan. Initially, EDF wanted to minority (between 40 and 50%): the project could then be supported by two thirds of the non-recourse debt, with a very limited impact on EDF’s balance sheet. Now, given its weight in the round (66.5%), public electrician must, if it confirms the investment project, consolidating in its accounts. To fund every year some € 1.5 billion for ten years, EDF relies on asset sales – it has identified a potential of more than EUR 10 billion.
But the situation is not very promising for some of its assets and the social context can be tricky. Above all, the project will change the risk profile of EDF, which seeks to limit the project’s impact on its credit rating one notch – this is not guaranteed. And the public guarantee UK Treasury is related to the start of Flamanville 3. The negotiated contract with London and validated by the European Commission based himself on a level of profitability in line with standards set by EDF, greater than 10%. But some fear that once the operating plant, a future government call into issue the guaranteed selling price of electricity for thirty-five years (92.50 pounds per megawatt hour, indexed to inflation).
What are the industrial risks?
EDF plans for each of the two EPR English a six-year construction period (72 months ) between the “first concrete” (expected in 2019) and the commissioning of the first reactor (scheduled for 2025). A construction time much shorter than that of the four EPR currently under construction in the world. This is one of the elements pointed to by the project’s opponents, who would prefer to wait for a return to full experience of current EPR construction sites to set a definitive timetable. Compared to the EPR under construction at Flamanville (Manche), the British regulatory authority (NRA) also requested a number of changes in the EPR design for Hinkley Point project, such systems ventilation or protection against fire, complicating engineering and adds costs. The EPR will be so, again, a series of head.
Another risk with regard to the supply of components, including those for the nuclear island, to be directed by Areva. The “anomaly” raised by the Nuclear Safety Authority on the tank Flamanville triggered a broad audit program on all of Areva productions Creusot and Saint-Marcel (Saône- et-Loire) since 2004. “There is work to do to find a good level of production, especially as the redundancy plan in Areva NP will scare away some skills Note industrial. The recovery is feasible, but it will take two or three years. “
Therefore, some are questioning the ability of Areva to produce the parts for Hinkley Point in its French plants. A “option” visibly in the study would be to transfer the activity on the tanks of two EPRs at Hinkley Point in Japan, used to forge and machine the larger parts of nuclear reactors. Another risk pointed, finally, is the English industrial fabric: no nuclear site will took place in the UK for twenty years, or 60% of production will be located there
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