Centrica really can't lose at Sizewell

Times

14 hours ago

Now we know what Ed Miliband means by his 'golden age of nuclear' — golden for the companies putting their money into Sizewell C. Yes, reactor projects have a habit of blowing up private investors. But maybe not this one. It looks more like an exercise in transferring risk to consumers and the taxpayer.
Sure, nobody builds a £38 billion nuke on a Suffolk flood plain without a frisson of danger. But the energy secretary and his Treasury chums have done their bit to make things as safe as possible for the companies putting in equity alongside the government's 44.9 per cent stake: Canada's La Caisse with 20 per cent, British Gas-owner Centrica (15 per cent), France's EDF (12.5 per cent) and Amber Infrastructure (7.6 per cent).
For starters, nearly all the debt for the 3.2 gigawatt plant, three-quarters funded by loans, is coming from the state-backed National Wealth Fund. It's bunging in up to £36.6 billion, with £5 billion more guaranteed by a French export credit agency. On top, the financial model is the regulated asset base (RAB) — built to pay equity holders during construction, while shifting cost overrun risk to consumers. Hence, the £1 a month rise in electricity bills to fund Sizewell.
Then, as Centrica spelt out to investors, there looks to be some juicy equity returns to come, with what it called 'robust protections against building delays and cost overruns' — the reason the shares rose 5 per cent to 164p. Indeed, Chris O'Shea, the Centrica chief, found himself fielding questions from analysts on why he'd limited the equity stake to £1.3 billion. As he put it: 'It's always nice when you make an investment and someone asks why you didn't invest more.'
On their equity, investors are allowed an 'inflation-protected' return of 10.8 per cent. And, as long as Sizewell is built by the end of next decade at £40.5 billion or less, the 'lower regulatory threshold', equity holders will see 100 per cent of construction costs added to the RAB plus 50 per cent of any cost savings below that figure. Hit that target and, by then, Centrica thinks its share of the RAB will be up to £3 billion, with the project bringing an internal rate of return (IRR) of 12 per cent-plus.
What of the downside risk? Well, there isn't much. If the costs come in above that level, 50 per cent of the extra construction costs still go into the RAB — all the way up to £47.7 billion, the 'higher regulatory threshold'. And even then, Centrica reckons it'll have an IRR topping 10 per cent because, as it put it, 'the RAB you have built up to that point is held firm'. As it also noted, if Sizewell costs exceed that figure and investors refuse to put more money in, the government will either put in the extra funding or axe the project and compensate equity investors.
Asked how he'd lose on Sizewell, O'Shea said: 'If you didn't complete the construction, you would lose money, you've lost all your investment. If you build something that didn't work, you would lose all of your investment'. It's true, too, that Sizewell's sister nuke, Hinkley Point C, now up to £48 billion in today's money, has seen its price tag more than double.
Even so, there's a fair bit of protection for the likes of Centrica, which has also agreed a 20-year offtake deal for its share of Sizewell's electricity. The price of that is not yet known. But investor returns are built on Ofgem-regulated income. And the government is also backing the project with £54.6 billion of long-term subsidies for such things as protecting investors from 'low probability, high impact events'.Apparently Sizewell has passed a value-for-money test. It's not hard to spot where the value is going so far.
Things you hate to admit: Trump's threatened pharma tariffs seem to be working. Rather than swallow his medicine, drug firms are outdoing each other to crank up US investment.
The Swiss duo, Roche and Novartis, got in early, pledging a $50 billion and $23 billion spend. They joined US rivals Johnson & Johnson and Eli Lilly, which committed to $55 billion and $27 billion. And now? Up has popped the AstraZeneca boss Sir Pascal Soriot, promising to invest $50 billion in the world's No 1 market by 2030. By then he plans to have $80 billion of global sales, with half of them in the US, up from 42 per cent today.
The centrepiece of this big spend? A new facility in Virginia for Astra's weight-loss portfolio coming in at 'multibillion dollars — its 'largest single manufacturing investment in the world'. Soriot announced it to an audience starring Kevin Hassett, director of the US National Economic Council, and Glenn Youngkin, governor of Virginia, while the press release had a quote from Howard Lutnick, the US commerce secretary.
Soriot declared it 'the fastest ever negotiation and fastest we've ever committed in our company', all done in 33 days with undisclosed subsidies. Contrast the UK government's subsidy-cutting dithering over an abortive £450 million spend at Astra's vaccine plant at Speke, Liverpool. It even got a 'Thank you' from Trump. Yes, over time it may have made this investment anyway. But Trump has added some speed to America's medicine cabinet.
Another day, another slice off Rachel Reeves's fictitious £9.9 billion fiscal headroom. After £3.5 billion more borrowing than forecast in June, economists reckon she could already be £20 billion in breach of her rules, making budget tax rises and/or spending cuts inevitable. Still, why continue with the misleading term? Shouldn't it be fiscal headlock?