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China to take one-third stake in Hinkley nuclear project

Simon Dawson | Bloomberg | Getty Images

China is to take a one-third stake in a French-led project to build the first in a new generation of UK nuclear power plants, investing billions of pounds under a landmark commercial deal to be announced on Wednesday.

Its decision to take a 33.5 per cent share in the proposed £24 billion Hinkley Point power station in Somerset follows months of negotiations with French energy group EDF, which will lead the project and fund the rest of the construction bill.

There will be no other investors after Saudi Arabia backed out. EDF is expected to sell €10 billion of assets over the coming five years as it shores up its balance sheet and prepares to build up to three nuclear projects in the UK with its Chinese partners.

In a pact sealed just hours before the arrival of President Xi Jinping of China in London for this week's state visit, senior EDF executives and a negotiating team led by China's state-owned CGN struck an accord that will lead to a final investment decision on the plant — an irrevocable undertaking — by the end of the year.

The plan to press ahead with Hinkley Point C, a huge infrastructure project that will deliver 7 per cent of the UK's electricity needs, has the strong political backing of David Cameron, the UK prime minister, and the leaders of France and China.

It will be the commercial centrepiece of Mr Xi's visit this week. A second Chinese nuclear group, CNNC, will be involved in the project as a joint venture partner.

The agreement means that Hinkley will get a new completion date of 2025, coming online a decade from now and two years later than planned. It is already well behind schedule after a lengthy EU state aid inquiry, protracted talks on investment and the near failure of France's Areva, which will supply the European Pressurised Reactor technology used in the plant.

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EDF expects Hinkley's construction to be funded initially by equity.

Industry insiders say this means it is unlikely to raise as much debt as envisaged originally and is, therefore, not expected to draw heavily on public funds to underwrite that debt. The Treasury last month agreed to provide a £2 billion infrastructure guarantee. While more funding may be available, EDF has no plans to request it.

This week's accord is also expected to include a reference to future co-operation with the Chinese on two further nuclear plants, Sizewell in Suffolk and Bradwell in Essex.

China wants to use Bradwell to showcase its own reactor technology and would take the lead on that project, submitting a design to UK regulators.

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"Hinkley opens the way for them to submit their own designs and proposals," said one industry insider.

A poll commissioned by Greenpeace on Monday showed that less than a third of the UK public backed plans to build a new reactor at Hinkley. Some 29 per cent of more than 2,000 surveyed supported the plans, against 34 per cent opposed. "George Osborne is about to plough billions into the bottomless pit of ever more expensive nuclear power whilst pulling the plug on clean energy sources that are getting cheaper every year," said Doug Parr, the environmental campaign group's chief scientist.