Why is a big nuclear decision a lead story in A Word About Wind? It is a fair question. Not a question that anyone has actually asked us, mind you, but a fair one nonetheless, so let's pre-empt it.
On Wednesday, we reported that French utility EDF has again delayed making a decision on whether to build the £18bn Hinkley Point C nuclear power station in the UK. Investors and unions have raised concerns that it would put EDF’s survival in danger.
There is no doubt that this is a huge story for the energy market. EDF brands itself as the world’s biggest energy generator, with 38.5million customers and annual sales of €73bn, which means that any existential threat is serious. But still, why is it a wind story?
The short answer is ‘EDF Energies Nouvelles’, which EDF says is the largest producer of renewable power in Europe. Clearly, EDF EN’s future is closely tied with that of its parent.
And now for the long answer...
EDF EN has a 7.9GW portfolio of wind and solar projects globally, and it operates in Europe and North America with further activities in key emerging markets including Brazil, India and South Africa. It is in 18 countries in total, and this week grew its presence in India by signing a deal to form a 50:50 joint venture with Sitac Group. This joint venture is set to be EDF EN’s subsidiary in India and it plans to install 142MW by the end of 2016.
All this makes EDF EN a major player in renewables, but it is also a small part of the EDF business. Overall, 77% of EDF’s energy mix is nuclear, with 8% fossil fuels, 7% hydro and 6% combined cycle and cogeneration. The last 2% is wind and solar. If its board goes ahead with Hinkley Point C then it shows nuclear is a cornerstone for years to come, and makes it more likely that EDF could retrench from other sectors if financial problems come along.
And the funding worries are real. EDF is reportedly struggling to raise the money it needs to build Hinkley, and has a construction schedule of nine years for a scheme that would usually take 10-15 years. Any delay would incur fines, so there is a big chance it could end up in a deep financial hole — and this raises the likelihood of it looking to sell off its subsidiaries to balance the books.
If there are problems with Hinkley then EDF would surely consider its options for EDF EN, of which we see three.
The first option would be selling out completely. If EDF EN came to the market today then it would surely attract interest from investors for all or parts of it, including the likes of E.On and RWE. There will always be those looking to grow their portfolios at the right price.
The second option would be a joint venture. This is a method favoured in the wind sector by other French firms. Areva has formed its joint venture Adwen with Spain’s Gamesa, and Alstom has formed a wind joint venture with GE as part of the sale of its energy assets that was concluded in November 2015. Following a similar model would help EDF raise funds by selling a stake in EDF EN while still giving it a foothold in renewables.
In fact, EDF EN chief executive Antoine Cahuzac has hinted that he would like a tie-up with GE-Alstom.
And the third option would be a management buyout, although we could only say that this is a serious contender when we know who is running EDF EN at the time of reckoning, if that time comes.
For now, this is speculative of course, but it shows that there are wider risks for EDF's renewables arm if it goes ahead with Hinkley.
The EDF board will get its next chance to decide on whether to proceed with the £18bn project on 16 February. They will not want to commit to a project that would send EDF into a death spiral.
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