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StockBeat: EdF Sags Under the Weight of Hinkley Point Fiasco

By Geoffrey Smith

Investing.com -- You may remember Thomas Piquemal. He resigned as chief financial officer of Electricite de France (PA:EDF) three years ago after warning that the French government’s determination to have EdF build the Hinkley Point C reactor in south-west England could bankrupt the company.

Fast forward three years and, while bankruptcy may still seem fanciful given the French state’s backing for its national champion, the flawed economics of the project are once again standing in the harshest of spotlights after EdF warned of yet more overruns to the project. It now expects up to $3.6 billion in additional costs and warned that it’s more likely than ever that the project will be delayed.

EdF’s shares fell 6.6% in early trading on Wednesday to a new two-year low of 9.97 euros. EdF was worth 107 billion euros back in 2010 when the British government announced the sites where it wanted to build a new generation of nuclear plants. It’s now worth 30 billion ($33 billion).

This year alone, it has fallen nearly 28%, while most of Europe’s biggest energy suppliers have posted double-digit gains. At 21 times earnings, according to data compiled by Investing.com, it’s still one of the more expensive stocks in a peer group which trades largely in the teens.

The timing of the announcement is particularly painful for the company, coming only a couple of weeks after it was faced with potentially high costs for fixing faulty welds at its reactors across France.

The folly of locking U.K. energy consumers into financing such a project is now painfully apparent. Nor is this hindsight: the British parliament was warned repeatedly back at the start of the decade that, while renewable costs would plummet as various technologies matured, there was no such falling price curve to be hoped for in nuclear, whatever technological advances the new generation of plants brought. The U.K. guaranteed EdF a price of 92.50 pounds per megawatt-hour for Hinkley Point C in 2012. Last week, it auctioned offshore wind power projects at a strike price of as low as £39.65/MWh.

EdF may get some consolation from the fact that its bad news is being buried Wednesday under bigger concerns about global growth and the U.S.-China trade war after President Donald Trump’s harsh anti-China and anti-Iran rhetoric at the UN on Tuesday. The benchmark STOXX 600 was down 1.3% at 384.60, while the CAC 40 was down 1.5% and the U.K. FTSE 100 was down 0.9%.

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