UBS said Centrica PLC (LSE:CNA) has upside potential from a UK government consultation that could extend the life of existing nuclear assets via the Contracts for Difference (CfD) scheme.
The UK government yesterday published a consultation on offering CfDs for existing reactors.
The surprise, according to the bank, is the possible inclusion of life extensions for EDF's ageing fleet of advanced gas-cooled reactors (AGRs), which are 20% owned by Centrica, some of which were due to close as soon as April 2028.
UBS, which reiterated its 'buy' rating with a price target of 205p, said the key hurdle remains the ageing graphite cores, but EDF has already carried out engineering assessments and inspections, suggesting further operation is technically feasible.
The economics of the AGRs is another story: life extensions would require fresh capex and expensive academic support.
Still, UBS estimates that support from the CfD scheme at £65/MWh could add 1.3p of earnings per share and cash per year for each year of AGR life extension, plus £0.9 billion of value from the Sizewell B nuclear plant if it’s extended to 2055.
Beyond Centrica, UBS sees this as another step in the re-regulation of the UK power market, with CfD-backed supply possibly covering more than 50% of UK demand by early 2030s, shifting the structure of the electricity market.