Talks between the British government and power giant Electricite de France SA (EDF.FR) over the potential building of new nuclear reactors in the U.K. are expected to last until the end of the year, well past the initial deadline of the end of 2012, several people close to the discussions said.

Both parties are deadlocked over the guaranteed price EDF would get for the power produced from at least one new reactor, projected to be built at the Hinkley Point in Somerset , southwest England , the people said.

EDF, the world's largest nuclear operator, wants a price of between GBP95 and GBP100 a megawatt hour of electricity while the government would rather settle at GBP80 to GBP85/MWh. The current wholesale electricity price is about GBP48/MWh.

This price will determine the rate of return for plant operators.

In an interview with U.K. newspaper the Guardian Monday, U.K. Energy Secretary Ed Davey both parties have "made a hell of a lot of progress in our negotiations but we are not there yet. We are down to one or two issues, including the actual price."

"Negotiations are ongoing. Government is are working closely together on these negotiations with EDF," a spokesman for U.K. 's Department of Energy and Climate Change said Wednesday.

"We've been clear that an agreement will be reached only if it is fair, affordable, offers value for money for consumers and is consistent with the Government's policy of no public subsidy for new nuclear," the spokesman added.

The talks started more than two years earlier and in late June last year, EDF's chairman and chief executive Henri Proglio had then said he had expected the final investment decision at the end of 2012.

Whether EDF and the U.K. can reach an agreement is seen as a litmus test for the economic viability of nuclear energy in Europe . The talks come as the U.K. government is weighing up the costs of new nuclear reactors, which are key to hitting carbon-emission goals and maintaining an adequate level of electricity supply, against popular discontent over high energy prices that are contributing to rising living costs.

Furthermore, the need to add extra power production capacity in the U.K. is becoming urgent as supply is expected to tighten faster than expected, the country's energy regulator Ofgem said last week.

Mr. Davey said this week 15 nuclear reactors in the U.K. are to close by 2023, representing eight gigawatts of power.

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