EDF hopeful of extending duration of its reactors

Monday, December 8, 2008

EDF is hoping to secure a multi-billion euro windfall by extending the lifecycle of its nuclear power stations. This could prove crucial to maintaining its top grade credit rating as it invests billlions in acquisitions and plant renewal.

The energy group this week set out in detail the costs and expected gains from the planned investment in its 58 nuclear power stations that could enable it to run reactors for up to 60 years, against the current lifecycle of 40 years.

It estimates that for an investment of roughly €400m ($507m) per reactor, it can add value of €1.2bn by deferring the €4bn cost of building a new plant and maintaining the reactor's cashflow. But the biggest potential windfalls could come from the writeback of provisions on decommissioning.

In 2003, the group recorded a timely €3bn gain, following a costly acquisition spree, by extending the duration of its reactors by 10 years.

"Each time we can push back the construction of a new reactor there is a colossal financial positive for the company," said a senior EDF executive. He insisted, however, that the extensions had not been factored into the group's financial forecasts and that it would be able to maintain its AA-minus credit rating despite hefty obligations over the next decade. Nonetheless, analysts said that the extra financial cushion could be crucial, especially amid fears that the French government could cut regulated tariffs in a bid to boost consumer spending.

A life extension would "have a real impact on net income", said Patrice Lambert de Diesbach of CIC Securities.

Per Lekander of UBS estimates EDF could gain as much as €8bn from life extensions this time round, a useful windfall as it shells out €14bn for British Energy, offers $4.5bn for nuclear assets in the US and plans an international investment programme of €36bn to 2010.

"The difference between EDF not having to renew its fleet and having to do so is at least €3bn in cashflow a year," said Mr Lekander. "What happens in France is critical."

Mr Lekander believes EDF is likely to win extensions on most reactors, with the practice already common in the US and elsewhere. Eighteen reactors reach the end of their lifecycles between 2015 and 2020.

But the first tests - due next year - may not be easy. EDF will apply for an extension at Tricastin, where it has been reprimanded several times by the safety watchdog for operational and maintenance lapses. Failure at the first hurdle risks provoking a sharp disappointment in the market.

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