4 Min Read
* EDF says project could cost 1.5 bln pounds more
* UK government says any overruns sit with EDF
* France calls on EDF to keep a lid on overruns (Adds Moody's, French finance minister comments)
By Sudip Kar-Gupta and Bate Felix
PARIS, July 3 (Reuters) - French state-owned utility EDF flagged a construction cost overrun at its Hinkley Point C nuclear power station in Britain on Monday, in a new blow for a group of EDF projects already facing delays, rising costs and other problems.
After a review, EDF said the cost of completion had increased by 1.5 billion pounds to stand at 19.6 billion pounds ($25.5 billion) - an increase that means its predicted rate of return on investment will fall to 8.5 percent from 9 percent previously.
The review, carried out after the final investment decision was made, looked into design and engineering plans, the amount of work that has to be carried out and further discussions with suppliers, EDF said.
EDF also said there was a risk of delayed delivery of the project of 15 months for Unit 1 and nine months for Unit 2, which would add a further 700 million pounds to costs.
The company said it was on track to meet its target of pouring first concrete for the reactor in mid-2019, with unit 1 set to be producing by 2025.
The latest update should have no impact on power supply in Britain, nor should it affect Britain's electricity costs from the first new nuclear plant in decades which is slated to provide 7 percent of its power needs.
"The UK government negotiated a competitive deal which protects consumers and ensures that all of the cost of construction, including any overruns, sits with the contractor," a spokeswoman for the Department for Business, Energy and Industrial Strategy said in an email.
EDF confirmed there would be no impact on that contract.
Credit rating agency Moody's said the cost revision and the risk of slippage were credit negative for EDF and illustrated the financial risks of the project's long construction phase during which no cash flow is generated.
The French government stepped in later on Monday, with Finance Minister Bruno Le Maire asking EDF to come up with a "rigorous" action plan by the end of July to ensure the review's financial impact remains as small as possible.
EDF's announcement follows a report last week in Le Monde newspaper flagging likely cost overruns on Hinkley, although the project received a boost around the same time from news that a prototype being built in Flamanville, France, got the all-clear from safety regulators even though inspectors had found weak spots in its steel reactor cover.
Flamanville itself has faced severe delays, having initially been scheduled for completion by 2012. Another project under construction in Finland using the same so-called European Pressurized Reactor (EPR) technology has also faced delays and cost overruns.
EPR reactors were developed by financially stretched reactor maker Areva, which is in the process of being acquired by EDF following a restructuring of Areva.
Areva and its Finnish customer Teollisuuden Voima (TVO) are locked in a multibillion dollar legal battle over compensation.
In 2015, Austria launched legal action against the European Commission over the Hinkley Point C project, saying its decision to approve a pricing arrangement that allowed EDF to finance it went against the EU's aim to support renewable energy.
Hinkley Point C was also thrown into doubt in 2016 when newly installed British Prime Minister Theresa May put back a decision to approve it, amid criticism that the guaranteed price negotiated with EDF was too high.
British government approval eventually went ahead and by March this year, there were 1,600 people working at the site.
EDF is building the plant with China General Nuclear Power Corporation (CGN), which has a 33.5 percent stake.
Two EPRs are also under construction in Taishan, China. Their bases and covers were manufactured by Creusot Forge in France, the same factory that made the flawed cover for Flamanville.
$1 = 0.7691 pounds Additional reporting by Sarah Mills in London and Michel Rose in Paris; Writing by Andrew Callus; editing by Susan Thomas and Jane Merriman