PARIS (Reuters) - Hitachi’s decision to freeze its $28 billion nuclear power project in Britain strengthens the hand of France’s EDF and its Chinese partner in talks with the government on how to finance new reactors.

FILE PHOTO: Construction workers are seen beside one of two 'nuclear islands' at the Hinkley Point C nuclear power station near Cannington in southwest England, January 17, 2018. REUTERS/Toby Melville

Funding new nuclear plants has become critical as Hitachi became the second Japanese firm to say its British nuclear power project had hit the buffers over financing. The two projects would have covered about 13 percent of Britain’s power needs.

EDF and its partner China General Nuclear Power Corporation (CGN) want to use a financing model under which investors in their nuclear projects receive payment from the moment they start construction, reducing their risk.

But to proceed with this approach, the government must first win over lawmakers and consumers, already frustrated by hefty energy bills and costly nuclear projects that often face delays.

“The question is whether it is sellable to parliament that all the risks go to the public. But if that is not the case, they will get no investors,” said Stephen Thomas, emeritus professor of energy policy at Greenwich University.

EDF is negotiating with the government on funding the Sizewell C project using the so-called regulated asset base model in which investors earn a government-set fixed return from the start, instead of waiting years until construction is completed before receiving a return.

China General Nuclear Power Corporation (CGN) has a 20 percent stake in Sizewell C, while EDF has a 33.5 percent stake in CGN’s project to build a reactor at Bradwell, Essex.

“If new nuclear is to be successful in a more competitive energy market – which I very much believe it can be – we need to consider a new approach to financing future projects,” Energy Secretary Greg Clark told parliament, saying this included Sizewell and Bradwell.

He addressed lawmakers after Hitachi said it had failed to find private equity investors, even though the government had considered partly funding it with taxpayer’s money.

That announcement followed Toshiba’s decision in November to scrap its NuGen project in Britain after its U.S. reactor unit Westinghouse went bankrupt and it failed to find a buyer for the plan.

DOOMED FROM THE START

Specialists say both projects were doomed from the start.

Only utilities have the steady cash flows to fund such long-term projects, but most European utilities pulled out of Britain’s nuclear plans after the 2011 Fukushima disaster led to rising safety costs and as renewable energy became a more competitive investment prospect.

The regulated asset base model may now be one of the few remaining options to fund new nuclear plants in Europe. It is commonly used to fund construction of electricity transmission lines and, in Britain, has been used to fund the Thames Tideway Tunnel, a “super sewer” for London.

“Dialogue about a regulated asset base financing model for Sizewell C is progressing,” an EDF official said.

But the model has not be used in the nuclear industry, so talks are likely to be tough as the government seeks a clear outline of how much it would have to spend over a specified period and works to avoid writing a blank cheque to cover cost overruns.

The government intends to publish its assessment by the summer at the latest.

For now, the only nuclear plant under construction in Britain is EDF’s Hinkley Point C project, in which CGN also has a 33.5 percent stake.

The deal to fund that plant involved EDF taking on the financing and bearing the full risk for construction delays or cost overruns. In return, it was guaranteed a power price of up to 92.50 pounds per megawatt-hour for 35 years, more than twice the market rate when signed.

That drew fierce criticism from lawmakers and the public for being too generous and there are no plans to repeat it.

After the Hitachi and Toshiba announcements, the government is now depending on just EDF and CGN to deliver on its plans for a fleet of new reactors to meet energy demand as it phases out old nuclear facilities and coal-fired plants.

“Britain’s energy security and decarbonisation strategy are hanging by a thread,” said French consultant Thibault Laconde.