The nuclear power crisis escalated dramatically on March 29 with the announcement that US nuclear giant Westinghouse, a subsidiary of Japanese conglomerate Toshiba, had filed for bankruptcy protection.1 The Chapter 11 filing took place in the US Bankruptcy Court for the Southern District of New York, and marks the start of lengthy and complex negotiations with creditors and customers and the US and Japanese governments.
The companies are in crisis because of massive cost overruns building four AP1000 nuclear power reactors in the southern US states of Georgia and South Carolina. The combined cost overruns for the four reactors amount to about US$11.2 billion and counting.2
The crisis escalated again on April 11 when Toshiba released partial, unaudited financial figures. Toshiba's statement said there is "substantial doubt about the Company's ability to continue as a going concern".3 Toshiba reported a net loss of ¥647.8 billion (US$5.9bn) for the Oct.‒Dec. 2016 quarter, mainly because of a US$6.3bn writedown on Westinghouse. Shareholder equity stood at negative ¥225.6 billion (US$2.05bn) as of Dec. 313 and Toshiba expects equity of negative ¥620 billion (US$5.67bn) as of March 31.4
Adding to the drama, auditor PricewaterhouseCoopers did not endorse the April 11 financial statement and instead submitted a statement emphasizing the risks to Toshiba's future.5 An ongoing inquiry is investigating allegations of excessive pressure by senior Westinghouse management on company staff to understate losses from the AP1000 projects in the US6 and PricewaterhouseCoopers is concerned that Toshiba may not have appropriately reflected those issues in its accounts. Nikkei Asian Review reported on April 4 that with appropriate accounting, Toshiba's liabilities may be found to have exceeded its assets for the second consecutive year, which is the Tokyo Stock Exchange's standard for delisting shares.7
"Toshiba has done everything in its power to gain the understanding of the auditors," chief executive officer Satoshi Tsunakawa said at an April 11 press conference attended by about 200 reporters in Tokyo.5 Toshiba has already twice delayed release of its financial figures, and released unaudited figures on April 11 in the hope of avoiding a stock exchange delisting that would worsen the crisis engulfing the firm, increasing financing costs and exposing it to further lawsuits from shareholders.
But all that can be said about the partial release of hideous figures, accompanied by a disclaimer from the auditor, is that it was the least-worst of Toshiba's options. The company still risks being delisted, with its shares previously designated "securities on alert" due to a profit-padding accounting scandal from 2008‒2014 that was revealed in 2015.8 Miwa Aonuma, a spokesperson for Japan Exchange Group, which runs the Tokyo Stock Exchange, said: "The disclaimer of opinion by the auditor is an additional item that we must evaluate and consider."5
In addition to a potential stock market delisting, Toshiba noted that its special construction license needed for its energy and social infrastructure businesses is at risk because current regulations require companies with such licenses to be financially stable. The company has to renew the permit by the end of December and said that if it fails to "meet the criteria and to renew the license, there will be an extremely negative impact on its business execution."8
Financial figures for the March 2016 ‒ March 2017 fiscal year will not be released until mid-May. Toshiba said on March 29, and again on April 11, that it could end up with a net loss of just over ¥1 trillion (US$9.1bn) for the fiscal year, well over double the estimate of ¥390 billion provided just a month earlier.9 "Every time they put out an estimate, the loss gets bigger and bigger," said Zuhair Khan, an analyst at Jefferies in Tokyo. "I don't think this is the last cockroach we have seen coming out of Toshiba."10
In the meantime, Toshiba is seeking additional bank loans, offering stock holdings and real estate as collateral to lenders.5
Toshiba will still be liable for the existing cost overruns with the four AP1000 reactors in the US but the bankruptcy filing may limit its liability for future cost overruns. Thus Toshiba has somewhat reduced the likelihood of facing bankruptcy itself. However the decision bodes poorly for Westinghouse and the AP1000 projects in Georgia and South Carolina ‒ the future of the company and its reactor projects are in doubt. Ironically, the bankruptcy filing will inevitably lead to further delays and cost overruns with the AP1000 reactor projects ‒ a critical situation has been made worse.
Even if Toshiba and Westinghouse survive the unfolding crisis, some of their reactor projects and plans will not. Four AP1000 reactors under construction in China will very likely be completed, but plans for more AP1000 reactors in China seem unlikely to progress, and plans for 6‒12 AP1000 reactors in India will likely be shelved.
Meanwhile, French company Engie has exercised its right to sell its 40% stake in NuGen to Toshiba. Thus Toshiba will be left with 100% of NuGen, the consortium which hoped to build three AP1000 reactors at Moorside, near Sellafield, in the UK. Toshiba wanted to sell its 60% stake in NuGen, and now wants to sell its 100% stake.
The bankruptcy filing and its impact on the future of Toshiba, Westinghouse, and AP1000 reactor projects are detailed in the following articles in this issue of Nuclear Monitor.
A big chill
Beyond the direct impact of the bankruptcy filing on numerous reactor projects around the world, the most important impact of the unfolding crisis is the chilling effect it will have ‒ and is already having ‒ on the nuclear power industry. The AP1000 fiasco in the US ‒ and the even larger cost overruns with French EPR reactors under construction in France and Finland ‒ demonstrate that industry giants can be brought to their knees by cost overruns on just a few reactors.
Governments, energy utilities and companies, banks, and investors will be considerably less likely to gamble on nuclear power in light of recent events. Not many energy utilities and companies are as large, and as capable of absorbing debt, as Toshiba and Westinghouse. Or as experienced: Toshiba has built 20 reactors in Japan (some in joint ventures), and Westinghouse has built 91 reactors globally.2 Yet cost overruns on four reactors have brought these industry giants to their knees. Plans for new reactors are already being reconsidered and abandoned and that will play out for months and years to come.
Nuclear lobbyists freaking out
The French Liberation newspaper said on March 29 that the Toshiba/Westinghouse crisis, and the huge problems facing French utilities EDF and Areva, forebode a lasting "nuclear winter".11
A February 15 piece in the Financial Times said: "Hopes of a nuclear renaissance have largely disappeared. For many suppliers, not least Toshiba, simply avoiding a nuclear dark ages would be achievement enough."12
Nuclear advocate Rod Adams wrote in Forbes on March 27: "Outside of Asia and Russia, prospects for nuclear power plants in the extra-large size range seem to be dimming by the week. It has been several decades since the last project made it through the full distance marathon required to design, site, license, construct and complete a new nuclear power plant [in the U.S.]. The Watts Bar units that are the most recently completed plants in the U.S. were designed, sited and licensed while I was still in grade school – and I am a semi-retired grandfather of six."13
Ted Norhaus from the Breakthrough Institute wrote on March 27 ‒ before Westinghouse's bankruptcy filing ‒ about his prescriptions to forge "a globally competitive advanced nuclear sector ... from the ashes of today's dying industry".14 His innovative, ecomodernist proposal is to take more of your money and give it to the nuclear industry, combined with some vague ideas about "radically reorganizing the nuclear sector" to facilitate "bottom-up innovation, led by start-ups, not large incumbents".
Following the bankruptcy filing, the Breakthrough Institute's Michael Shellenberger said: "I'm freaked out, honestly. If we were building nuclear plants, I wouldn't be so worried. But if nuclear is dying, I'm alarmed."15
Recent articles from the Breakthrough Institute and other nuclear lobby groups have warned of nuclear power's "rapidly accelerating crisis", a "crisis that threatens the death of nuclear energy in the West", "the crisis that the nuclear industry is presently facing in developed countries", and noted that "the industry is on life support in the United States and other developed economies".
Of course those nuclear lobbyists are dramatizing the situation to highlight the importance and urgency of giving more of your money to the nuclear industry. If the nuclear power industry is dying, or if it is dying in the West, that will take some decades to play out. Nonetheless, nuclear power growth can be confidently ruled out in the US, Japan, across EU countries combined, and in numerous other countries and regions for the foreseeable future.
The industry is downsizing and the recent Toshiba/Westinghouse crisis is the sort of convulsion that necessarily attends downsizing. Smart money has already jumped ship: the UK Nuclear Free Local Authorities noted on April 4 that seven energy utilities and companies have abandoned plans to build new reactors in the UK over the past decade.16
Problems heaped upon problems
If the problems with the AP1000 reactor design were largely responsible for the catastrophic cost overruns in the US, the industry might at least console itself that ditching AP1000 technology in favour of a simpler, cheaper design would provide a path forward. But there's nothing intrinsic to AP1000 technology that in any way explains the problems ‒ there's nothing new or complicated about the AP1000 design (whereas the French EPR design has been described as being so complicated as to be "unconstructable"17).
The problems lie not with the AP1000 design but with the huge up-front capital costs of nuclear reactors, long pay-back periods and high risks, compounded by a lack of experience managing nuclear construction projects after a long period with few new plants.18
Perhaps the strongest reason for nuclear lobbyists to freak out is that the long period with few new plants is about to get longer in major nuclear countries ... and the lack of skills and experience could go from bad to worse to unrecoverable. A Reuters special report in 2010 warned about the skills crisis associated with an aging nuclear workforce ‒ a 'silver tsunami' ‒ and the problem is worsening.19
Add to those problems the growing incongruity between gigawatt-sized power plants and dynamic energy markets more amenable to smaller plants that can be built more quickly and at cheaper cost. A recent article on McKinsey.com discusses the proliferation of new energy sources and the fragmentation of energy markets ‒ dynamics that undermine established interests, especially those with gigawatt-scale products.20
And add to all those obstacles the extraordinary costs of nuclear accidents. The Japanese government's official estimate of Fukushima clean-up and compensation costs stands at ¥21.5 trillion (US$195 billion) ‒ four times greater than estimates provided in 2011/12. As Shaun Burnie notes in this issue of Nuclear Monitor, a new assessment from the Japan Institute for Economic Research estimates that total costs for decommissioning, decontamination and compensation could be far greater, ranging from ¥50‒70 trillion (US$454‒635 billion). Costs associated with the Chernobyl disaster have been estimated at a similar figure of US$700 billion.21
Meanwhile, the safety scandal involving Areva's Creusot Forge has escalated with the publication of a damning report by French nuclear regulator ASN ‒ see Pete Roche's article in this issue of Nuclear Monitor. Also in this issue of the Monitor, David Lowry writes about the scandalous mismanagement of a decommissioning program in the UK, which has led the UK government to agree to a £100 million (US$125m) out-of-court settlement.
The nuclear industry may or may not be dying, but it is certainly punch-drunk and in deep trouble. We've previously suggested in the Monitor that, after a growth spurt followed by 20 years of stagnation, nuclear power is approaching a new era, the Era of Nuclear Decommissioning (END). Recent events tend to confirm that the industry is at the beginning of the END.
References:
1. Toshiba Corporation, 29 March 2017, 'Notice on Chapter 11 Filing by Westinghouse Electric Company and its Group Entities, www.toshiba.co.jp/about/ir/en/news/20170329_1.pdf
2. World Nuclear Industry Status Report, 2 Feb 2017, 'Toshiba-Westinghouse: The End of New-build for the Largest Historic Nuclear Builder', www.worldnuclearreport.org/Toshiba-Westinghouse-The-End-of-New-build-for...
3. Toshiba Corporation, 11 April 2017, 'Toshiba Announces Consolidated Results for the First Nine Months and the Third Quarter for Fiscal Year 2016, Ending March 2017', www.toshiba.co.jp/about/ir/en/finance/er/er2016/q3/ter2016q3e.pdf
4. Kana Inagaki, 11 April 2017, 'Toshiba warns of 'substantial doubt’ on staying in business', www.ft.com/content/4a068050-1e9b-11e7-b7d3-163f5a7f229c
5. Pavel Alpeyev and Takako Taniguchi, 11 April 2017, 'Toshiba Warns of Its Ability to Continue as Going Concern', www.bloomberg.com/news/articles/2017-04-11/toshiba-reports-earnings-with...
6. Kana Inagaki and Leo Lewis, 27 March 2017, 'Toshiba nuclear debacle puts governance in spotlight', www.ft.com/content/b4ff5b78-0efd-11e7-b030-768954394623
7. Nikkei Asian Review, 4 April 2017, 'Toshiba shares drop 10% on possible delay in earnings report', http://asia.nikkei.com/print/article/250775
8. Kazuaki Nagata, 11 April 2017, 'Toshiba submits business results without auditor OK', www.japantimes.co.jp/news/2017/04/11/business/corporate-business/toshiba...
9. BBC, 14 Feb 2017, 'Toshiba chairman quits over nuclear loss', www.bbc.com/news/business-38965380
10. Dawn McCarty and Pavel Alpeyev, 29 March 2017, 'Toshiba Projects Record Loss as Nuclear Unit Files for Bankruptcy', www.bloomberg.com/news/articles/2017-03-29/toshiba-s-u-s-nuclear-unit-we...
11. Liberation, 29 March 2017, www.liberation.fr/futurs/2017/03/29/la-faillite-de-westinghouse-symptome...
12. Kana Inagaki, Leo Lewis and Ed Crooks, 15 Feb 2017, 'Downfall of Toshiba, a nuclear industry titan', www.ft.com/content/416a2c9c-f2d3-11e6-8758-6876151821a6
13. Rod Adams, 27 March 2017, 'As Extra-Large Nuclear Projects Struggle, Nimble Creators Devise New Approaches', www.forbes.com/sites/rodadams/2017/03/27/as-extra-large-nuclear-projects...
14. Ted Nordhaus, 27 March 2017, 'The End of the Nuclear Industry as We Know It', https://thebreakthrough.org/index.php/voices/ted-nordhaus/the-end-of-the...
15. Rob Nikolewski, 9 April 2017, 'The bankruptcy shaking nuclear energy to the core', www.sandiegouniontribune.com/business/energy-green/sd-fi-nuclear-woes-20...
16. Nuclear Free Local Authorities, 4 April 2017, www.nuclearpolicy.info/news/as-engie-becomes-the-seventh-internationalen...
17. Carbon Commentary, 22 Oct 2014, 'Cambridge nuclear engineer casts doubt on whether Hinkley Point EPR nuclear plant can be constructed', www.carboncommentary.com/blog/2014/10/22/cambridge-nuclear-engineer-cast...
18. Nick Butler, 15 Feb 2017, 'Toshiba and the options on new nuclear ', http://blogs.ft.com/nick-butler/2017/02/15/toshiba-and-the-options-on-ne...
19. Sylvia Westall, 29 Nov 2010, 'Nuclear's 'silver tsunami'', www.reuters.com/article/2010/11/29/us-nuclear-ageing-idUSTRE6AS1PQ20101129
20. Nikhil Patel, Thomas Seitz, and Kassia Yanosek, April 2017, 'Three game changers for energy', McKinsey Quarterly, www.mckinsey.com/industries/oil-and-gas/our-insights/three-game-changers...
21. Jonathan Samet and Joann Seo, 2016, 'The Financial Costs of the Chernobyl Nuclear Power Plant Disaster: A Review of the Literature', www.greencross.ch/uploads/media/2016_chernobyl_costs_report.pdf