On November 8, Japanese conglomerate Toshiba announced its withdrawal from the planned Moorside nuclear power project near Sellafield in Cumbria, UK.1 Having failed to find a buyer for associated subsidiaries ‒ NuGeneration Ltd and Advance Energy UK Ltd ‒ Toshiba will take steps to wind them down in the coming months. The site will be handed back to the UK Nuclear Decommissioning Authority.
NuGen envisaged the construction of three AP1000 reactors at Moorside, or 2‒3 South Korean AP14000 reactors if South Korea's KEPCO had purchased NuGen.2 NuGen was established in 2009 by GDF Suez of France, Scottish and Southern Energy, and Spain's Iberdrola. Scottish and Southern Energy withdrew in 2011, Iberdrola sold its stake to Toshiba in 2014, and GDF Suez (by then re-named Engie) sold its stake to Toshiba last year. Engie enforced its contractual right to offload its shares in NuGen to Toshiba following the bankruptcy filing by Toshiba's US nuclear subsidiary Westinghouse in March 2017. Thus, Toshiba has been the sole owner of NuGen since mid-2017.3
The decision to liquidate NuGen was based on Toshiba's "policy to eliminate risks to the overseas nuclear power construction business," the company said in a statement.1 Toshiba almost went bankrupt following Westinghouse's bankruptcy filing (Westinghouse was subsequently sold to Canada-based Brookfield Asset Management). Toshiba has reportedly spent around US$524 million on the Moorside project and will incur costs of around ¥15 billion (US$132 million) to liquidate NuGen.4
Potential buyers
Toshiba's November 8 statement said: "[N]otwithstanding negotiations with multiple companies, Toshiba is unable to anticipate to complete the sale of NuGen during FY2018, to March 31, 2019. After considering the additional costs entailed in continuing to operate NuGen. Toshiba recognizes that the economically rational decision is to withdraw from the UK nuclear power plant construction project, and has resolved to take steps to wind-up NuGen."1
The announcement followed 18 months of negotiations with potential buyers of NuGen. South Korea's KEPCO won 'preferred bidder' status in December 2017, reportedly despite serious competition from China General Nuclear Power Corporation.5
KEPCO planned to put together a consortium, purchase NuGen, pursue UK licensing of its APR1400 reactor design (which would take about four years), and then build reactors at Moorside and perhaps elsewhere. But KEPCO lost its preferred bidder status in July. Toshiba reportedly explored options with China General Nuclear Power Group. Nothing eventuated, 60% of NuGen's 100 staff were made redundant in September, and NuGen will likely be liquidated early in the new year and no longer be a burden on Toshiba's books.
Subsidies
NuGen CEO Tom Samson said that Toshiba's efforts to sell NuGen were complicated by the emergence of a new policy framework based on a 'Regulated Asset Base' (RAB) model.6 The RAB model is another mechanism to provide large subsidies to nuclear reactor construction companies, by protecting them from the risk of cost blowouts and passing that risk onto taxpayers and electricity ratepayers.7,8
Samson said: "Unfortunately, given that the RAB model is still in early stages of development, has not been determined as policy yet and still faces a lengthy legislative process before it can be applied to new nuclear, it has not proven possible to find a buyer willing to take that level of policy and legislative risk when entering the UK; hence we have been unable to bring an acquisition to a conclusion."6
The RAB proposal only surfaced in June 2018 and it is far from settled. The Guardian reported in September that a team of about 30 government officials are working on new nuclear financing, and the government's feasibility study on using RAB for new nuclear is expected in January.9 A RAB model for nuclear power might not survive a change in government: Labour called the mix of RAB and nuclear power a "spectacularly risky deal for consumers" and shadow energy minister Alan Whitehead said it was "reckless".9
South Korea
A 'senior government figure' told the Financial Times that he is "not optimistic" that the Moorside project can be salvaged.10 But there might yet be an agreement for KEPCO to build reactors at Moorside, whether or not NuGen is liquidated and the site handed back to the government's Nuclear Decommissioning Authority. South Korea's Ministry of Trade, Industry and Energy said in a statement following Toshiba's November 8 announcement: "The ministry plans to closely coordinate with the British government on the Moorside project while monitoring the NuGen liquidation process with KEPCO."11 One discussion point between Toshiba / NuGen, KEPCO and the UK government is a joint feasibility study that is considering profitability and risk when applying the RAB model to Moorside.
KEPCO is majority owned by the South Korean government, and one of the unknowns is the government's commitment to the Moorside project and how many billions it is prepared to gamble on a successful outcome. South Korea is slowly phasing out nuclear power but the government's official position is that it supports the ongoing efforts of KEPCO (and KH&NP) to secure nuclear contracts overseas.
An editorial in Korea Times linked the domestic nuclear power phase-out with discussions on Moorside: "The scheduled contract calls for the main contractor to run the Moorside nuclear power plant for more than three decades. The British side might have found it difficult to believe KEPCO's promise that it could maintain and repair the power station for such an extended period, while Korea would have phased out its own nuclear power stations. It is not just a matter of business but ethics if a country avoids operating nuclear plants for reasons of safety while trying to sell them to other countries."12
Direct government investment
In all likelihood, massive government subsidies would be available to any company prepared to pursue the Moorside reactor project ‒ not as massive as those provided to the French and Chinese developers of Hinkley Point C (primarily in the form of a guaranteed 'strike price' for electricity produced, and loan guarantees), but massive nonetheless. That makes the lack of interest in NuGen all the more significant.
Tim Yeo, a former Conservative minister and now a nuclear industry lobbyist, described Toshiba's November 8 announcement as a "huge disappointment and a crushing blow".13 Yeo accused the government of "dithering" and failing to offer a firm financial assistance package.
In June 2018, NuGen welcomed a government pledge to invest directly in Hitachi's proposed nuclear power project at Wylfa, Wales14 and no doubt NuGen (and its new owner, if one can be found) would gratefully accept such largesse.
Rob Johnston, chief executive of Cumbria Chamber of Commerce, speculated that when KEPCO "realised that the UK government wasn't going to invest as a partner, their enthusiasm for Moorside waned overnight."15
For the time being, the UK government seems willing to directly invest in the Wylfa project but not Moorside. The government is nonetheless under pressure to directly invest in Moorside, with Justin Bowden from the energy union GMB counterposing that "common sense" option to the "sheer folly" of relying on foreign companies and countries to build critical infrastructure. Bowden didn't seem confident about the future of the project, however, saying the "government has blood on its hands as the final sad but predictable nail is banged into the coffin of Toshiba's jinxed jaunt into nuclear power".13 In addition to lobbying for a revival of the plan to build large reactors at Moorside, GMB is also lobbying the national government to consider supporting the construction of one or more small modular reactors at Moorside.16
Following Toshiba's announcement, Cumbria County Council called on the UK government to take "any necessary steps" to get the Moorside project moving ahead and noted that projects like Moorside are highly unlikely to proceed without Government support, whether that be equity acquisition (direct investment), underwriting potential losses or guaranteeing the strike price.17
References:
1. www.toshiba.co.jp/about/ir/en/news/20181108_4.pdf
2. World Nuclear Association, 7 Dec 2017, 'Kepco named preferred bidder for UK's NuGen', www.world-nuclear-news.org/C-Kepco-named-preferred-bigger-for-UKs-NuGen-...
3. www.no2nuclearpower.org.uk/new-reactors/
4. Becky Beetz, 8 Nov 2018, 'Toshiba pulls plug on UK nuclear plans leaving path for renewables open', www.pv-magazine.com/2018/11/08/toshiba-pulls-plug-on-uk-nuclear-plans-le...
5. Jhoo Dong-chan, 7 Dec 2017, 'KEPCO chief concludes daunting task before resignation', www.koreatimes.co.kr/www/tech/2017/12/129_240564.html
6. Sonal Patel, 14 Nov 2018, 'Toshiba Scraps Massive AP1000 Nuclear Project in the UK', www.powermag.com/toshiba-scraps-massive-ap1000-nuclear-project-in-the-uk/
7. Steve Thomas, 28 Sept 2018, 'In Perspective: UK Rab Model Will Shift Risks to Consumers', www.nuclearconsult.com/wp/wp-content/uploads/2018/10/NuclearConsultingGr...
8. Dave Toke, 11 Nov 2018, 'How Greg Clark's Hitachi deal could lead to a £20 billion plus loss for the Treasury', https://realfeed-intariffs.blogspot.com/2018/11/how-greg-clarks-hitachi-...
9. Adam Vaughan, 11 Sept 2018, 'Plans for new Cumbria nuclear power station on verge of collapse', www.theguardian.com/business/2018/sep/11/toshiba-plans-for-new-cumbria-n...
10. www.ft.com/content/3f655db2-e30a-11e8-a6e5-792428919cee
11. Reuters, 8 Nov 2018, 'South Korea to closely coordinate with British government on NuGen nuclear project', www.reuters.com/article/us-toshiba-outlook-nugen/south-korea-to-closely-...
12. Korea Times ‒ Editorial, 3 Aug 2018, 'Nuclear plant's export ', www.koreatimes.co.kr/www/opinion/2018/08/202_253300.html
13. Kana Inagaki and Jim Pickard, 8 Nov 2018, 'Toshiba to liquidate UK nuclear arm NuGen Setback for Britain's plans to replace energy capacity from coal plants', www.ft.com/content/3f655db2-e30a-11e8-a6e5-792428919cee
14. Luke Dicicco, 7 June 2018, 'NuGen welcomes Government pledge to consider financial support for new nuclear power stations', www.in-cumbria.com/NuGen-welcomes-Government-pledge-to-consider-funding-...
15. Cumbria Chamber of Commerce, 3 Aug 2018, 'Why have the Koreans cooled on Moorside?', www.cumbriachamberofcommerce.co.uk/why-have-the-koreans-cooled-on-moorside/
16. 5 Nov 2018, 'Looming Moorside Collapse Must Be Reversed', www.gmb.org.uk/newsroom/newsroom/moorside-collapse-reversed.html
17. 16 Nov 2018, 'Moorside: Nuclear power plans for West Cumbria need public cash', www.in-cumbria.com/Moorside-Nuclear-power-plans-for-West-Cumbria-need-pu...