U.K.'s Aging Nuclear Fleet Offers Target for China Ambitions

HONG KONG, BLOOMBERG -- The possible replacement of the U.K.’s aging nuclear reactor fleet may offer China’s ambitious atomic power companies an outlet for investment and technology.

That could be the driver behind reports over the weekend by the London-based Sunday Times that state-owned China General Nuclear Power Corp. “made an approach” about acquiring as much as 49 percent in eight U.K. nuclear power plants owned by Electricite de France SA and Centrica Plc., without saying where it obtained the information. The stake is valued at as much as 4 billion pounds ($5.3 billion), according to the report.

Shenzhen-based CGN spokesman Huang Xiaofei said Monday “as of now, we haven’t conducted related work on it yet” and declined to comment further. EDF and Centrica declined to comment.

If successful, the deal would deepen CGN’s role in the U.K.’s energy sector after its high-profile investment in the 18 billion-pound Hinkley Point C project. China has been seeking overseas markets for its nuclear technology amid President Xi Jinping’s "One Belt, One Road" initiative, particularly its homegrown next-generation reactor, the Hualong One.

“Investing in U.K. nuclear plants and starting to build a track record may help CGN to gain more potential new projects in U.K., and later in other European countries, which will be beneficial for China to export China’s own nuclear technology,” said Anna Lu, a Hong Kong-based analyst at Daiwa Securities Group Inc. in Hong Kong.

Politics, Security

The deal would also likely renew concerns about the risks posed by state-owned Chinese companies owning critical infrastructure, which almost derailed the Hinkley agreement in 2016 when Prime Minister Theresa May delayed approval to review security issues.

EDF has been preparing for the replacement of its U.K. nuclear fleet, acquired when it took control of British Energy Plc in 2008. The plants, which supply about 20 percent of Britain’s electricity needs, are scheduled to either end generation or be decommissioned between 2023 and 2030, according to EDF Energy’s website.

“Buying minority stakes in old reactors in the U.K. -- showing commitment and cash support -- would be wise before it can engage in any new or replacement plant construction,” said Patrick Dai, a Shanghai-based analyst at Macquarie Group.

EDF-CGN Connection

Centrica in February said it planned to sell its 20 percent stake in the U.K. plants by 2020, which may raise as much as $1.3 billion. Chief Executive Officer Iain Conn said last month that the company has been approached by several buyers and has had serious conversations about the sale, but noted that the marketing process hadn’t yet begun.

CGN has been a key partner in EDF’s plans to develop French-designed next-generation reactors, known as the EPR, which have progressed in China while running into technical issues in Europe.

EDF teamed up with CGN 10 years ago to build EPR units at Taishan in Guangdong province, which are slated to become the world’s first to enter commercial operation. Firing up the units will be a vote of confidence in the model -- also being built in Britain, Finland and France -- and could trigger orders from other nations. The Taishan No. 1 unit began fueling earlier this year and was connected to the grid at the end of last month.

As part of the 2016 Hinkley Point C deal, CGN will provide a third of the funding, as well as taking a minority stake in a similar nuclear plant at Sizewell and then a majority holding in another at Bradwell, which will use Chinese technology. The U.K. began assessing the design of the Hualong One, also known HPR1000, in January 2017.

The U.K.’s May eventually approved the Hinkley investment in 2016 after China’s ambassador in London warned the decision represented a “critical historical junction” in the bilateral relationship. It was allowed to proceed under the condition that EDF wouldn’t sell down its controlling stake prior to completion of construction without government approval.