A nuclear industry lobbyist said in early 2017 that the UK's nuclear power program faces "something of a crisis".1 Since then, several plans for new reactors have collapsed and thus the nuclear new build program is in a full-blown crisis. In November 2018, Toshiba announced its withdrawal from the planned Moorside nuclear power project near Sellafield. And on 17 January 2019, Horizon Nuclear Power, a subsidiary of Japanese company Hitachi, suspended plans to build two Hitachi-GE Advanced Boiling Water Reactors (ABWR) at Wylfa in Anglesey, Wales. Hitachi's less-developed plan to build two ABWRs at Oldbury in Gloucestershire has also been suspended.
The reason for the Wylfa suspension is that Hitachi has been unable to find investors to reduce its costs and risks to an acceptable level. Horizon sought the support of South Korea's KHNP2, just as Toshiba sought South Korean support to rescue the Moorside project ‒ but in both cases South Korean utilities decided not to invest. Many other potential investors have been approached in Japan, the UK and elsewhere to get Wylfa off the ground, but to no avail.
The UK Nuclear Free Local Authorities noted that Hitachi joins a growing list of companies and utilities backing out of the UK nuclear new-build program:3
"Let's not forget that Hitachi are not the first energy utility to come to the conclusion that new nuclear build in the UK is not a particularly viable prospect. The German utilities RWE Npower and E-on previously tried to develop the site before they sold it on Hitachi in order to protect their own vulnerable energy market share in the UK and Germany. British Gas owner Centrica pulled out of supporting Hinkley Point C, as did GDF Suez and Iberdrola at Moorside, before Toshiba almost collapsed after unwise new nuclear investments in the United States forced it to pull out of the Sellafield Moorside development just a couple of months ago. If these 'titans' of the energy world cannot get new nuclear to work, then this growing trend should be telling the Government that the time for real change in energy policy has to now come, and indeed it is most overdue."
Greg Clark, Minister for Business, Energy and Industrial Strategy, put Hitachi's decision in context: "Across the world, a combination of factors including tighter safety regulations, have seen the cost of most new nuclear projects increase, as the cost of alternatives has fallen and the cost of construction has risen. This has made the challenge of attracting private finance into projects more difficult than ever, with investors favouring other technologies that are less capital-intensive upfront, quicker to build, and less exposed to cost overruns."4
The Wylfa project could be resumed "providing the right conditions are in place and the finance is there," said Hitachi's Director of Corporate Affairs Leon Flexman. But he wasn't enthusiastic: "I can't comment on the future when we don't know if those conditions will be met."5
Hitachi's CEO Toshiaki Higashihara listed three conditions that would have to be met in order for Hitachi to restart the Wylfa project: the project would have to be financed off the corporation's balance sheet; Hitachi would only commit relatively limited additional capital to the project; and even this modest incremental investment would have to offer the corporation prospects of an adequate profit.6
Horizon's chief executive Duncan Hawthorne said Hitachi would prefer to return to the UK as a supplier rather than a developer taking on large upfront risks.7
Flexman said the Wylfa project was costing £1m a day and "you just can't keep doing that forever as a responsible private company."5 Hitachi ‒ which purchased Horizon from E.ON and RWE npower for £696 million in 2012 ‒ has invested about £2 billion in the Wylfa project, including site preparation costs and completion of the UK's Generic Design Assessment for ABWRs.5
Hitachi said that it plans to post an impairment loss of about ¥300 billion (£2.1 billion; US$2.74 billion) and other expenses on consolidated financial results for fiscal 2018 (ending March 31, 2019). It also plans to post an extraordinary loss on unconsolidated financial results for fiscal 2018.8
The estimated cost of the twin-reactor Wylfa project had risen from ¥2 trillion (US$18.3 billion) to ¥3 trillion (US$27.4 billion).9
Staggering government support on offer
Neither the Wylfa decision or Toshiba's decision to scrap the Moorside project came as a surprise. Perhaps the most striking feature of the Wylfa obituaries was the address to Parliament by Minister Greg Clark, in which he disclosed details about the staggering level of government support on offer:4
"Mr. Speaker, while negotiations were ongoing, I am sure the House will understand that the details were commercially sensitive, but following Hitachi's announcement I can set out in more candid terms the support that the government was willing to offer in support of the project. Firstly, the government was willing to consider taking a one third equity stake in the project, alongside investment from Hitachi and Government of Japan agencies and other strategic partners. Secondly, the government was willing to consider providing all of the required debt financing to complete construction. Thirdly, the government agreed to consider providing a Contract for Difference to the project with a strike price expected to be no more £75 per megawatt hour.
"I hope the House would agree that this is a significant and generous package of potential support that goes beyond what any government has been willing to consider in the past. Despite this potential investment, and strong support from the government of Japan, Hitachi have reached the view that the project still posed too great a commercial challenge, particularly given their desire to deconsolidate the project from their balance sheet and the likely level of return on their investment. ...
"I believe the package of support that we were prepared to consider was the limit of what could be justified in this instance. I was not prepared to ask the taxpayer to take on a larger share of the equity, as that would have meant taxpayers taking on the majority of construction risk and the government becoming the largest shareholder with responsibility for the delivery of a nuclear project. I also could not justify a strike price above £75 per megawatt hour for this financing structure, given the declining costs of alternative technologies and the financial support and risk sharing already on offer from the government which was not available for Hinkley Point C."
Bleak prospects
The World Nuclear Association described the UK government's financial terms for Wylfa as "unprecedented".10 The Japanese government was also offering significant support11, the details of which have not been publicly disclosed.
If a project with so much government largesse on offer can't get off the ground, the prospects for the nuclear industry in the UK are clearly bleak. Labour's Shadow Energy and Climate Change Minister Dr Alan Whitehead said the government's nuclear power strategy is now in "complete meltdown" and "has gone up in smoke".12 Dame Sue Ion, chair of the UK's Nuclear Innovation and Research Advisory Board, said the Wylfa suspension is "a devastating blow for North Wales and for the nuclear sector generally and leaves the Government's Nuclear Industry Strategy in tatters and companies across the whole sector unwilling to invest further."13
In 2017, the Department for Business, Energy and Industrial Strategy (BEIS) downwardly revised its nuclear power projection from 17 GW to 14 GW in 2035, compared to current capacity of 8.9 GW.14,15
That 14 GW would comprise the Sizewell B reactor and 13 GW of new capacity (with all other operable reactors permanently shut down by 2035). If Hinkley Point C (3.2 GW) is completed, almost 10 GW of new capacity would still be required. It's anyone's guess where that might come from. EDF is hoping to build 3.2 GW of nuclear capacity at Sizewell, and China's CGN hopes to build an estimated 2.3 GW at Bradwell, but both projects face obstacles and all other projects have collapsed or been suspended. (Chinese utilities currently hold a one-third share in Hinkley Point C, a 20% share in Sizewell C and a two-thirds share in Bradwell. China sees the UK as a bridgehead into the rest of Europe, where it intends to build its own reactors.16 One wonders how long China's enthusiasm will last with the UK new-build program falling apart and several European countries phasing out nuclear power over the next 10‒15 years: Germany, Switzerland, Spain and Belgium.)
It seems likely that BEIS will be mugged by reality and will once again downwardly revise its projections for nuclear power.
In its infrastructure assessment released in July 2018, the UK government's National Infrastructure Commission argued that the government should take a slower, step-by-step approach to new nuclear projects and should not agree to support more than one new nuclear power station beyond Hinkley Point C before 2025.17 The Commission estimated that an electricity system powered mainly by renewables would cost no more than relying on new nuclear power plants; indeed it estimates slightly lower average costs for a scenario with 90% renewable and less than 10% nuclear compared to a scenario with 40% renewables and around 40% nuclear. The Commission said the economic analysis factored in the cost of balancing intermittent renewables through storage, smart grids and interconnectors.
Sir John Armitt, chair of the Commission, said: "When it comes to energy, then we see a future of renewables. ... I think where I have been accused of a change of mind is on nuclear. Where, in the past, I've been a strong supporter of nuclear, this work that we have done in the national infrastructure assessment – and the evidence base that we have got for it – I think that we are in a different world today. We don't have to be as dependent on a nuclear solution as maybe we thought we needed to be 10 years ago."18
The government will release its formal response to the National Infrastructure Commission report in the coming months. The government will also release details of a new nuclear financing model which aims to foist an even greater share of costs and risks onto British taxpayers and electricity ratepayers.
The Energy and Climate Intelligence Unit (ECIU) has analyzed the potential for renewables to fill the gap (9.2 GW or 73 TWh/year) left by the failure of the Moorside, Wylfa and Oldbury projects. The ECIU concluded: "Filling the 'nuclear gap' with alternative low-carbon power sources would keep bills down, maintain secure energy supply and allow the UK to maintain progress towards legally binding climate targets."19
Just because the rationale for the new build program is fading, that doesn't mean it won't go ahead. It might still be pursued because of ideological pig-headedness and stupidity. Hinkley Point C is a case in point. In 2017, the UK National Audit Office said Hinkley Point is "a risky and expensive project with uncertain strategic and economic benefits"20 and the UK Parliament's Public Accounts Committee said Hinkley Point amounts to a "bad hand" and "the poorest consumers will be hit hardest".21
The new build program might also be pursued in the belief that a strong civil nuclear industry is an important or necessary underpinning to the UK's nuclear weapons program.22
References:
1. Jillian Ambrose, 1 April 2017, 'Can Britain's nuclear ambitions avoid a meltdown?', www.telegraph.co.uk/business/2017/04/01/can-britains-nuclear-ambitions-a...
2. World Nuclear Association, 28 July 2017, 'Talks confirmed for Korean stake in UK Horizon nuclear project', http://www.world-nuclear-news.org/C-Talks-confirmed-for-Korean-stake-in-...
3. UK Nuclear Free Local Authorities, 22 Jan 2019, 'NFLA argues the priority for Anglesey is now the safe decommissioning of Wylfa A and a concerted effort for new jobs in renewable and decentralised energy', media release, http://www.nuclearpolicy.info/news/nfla-argues-priority-anglesey-safe-de...
4. Greg Clark, 17 Jan 2019, 'Statement on suspension of work on the Wylfa Newydd nuclear project', https://www.gov.uk/government/speeches/statement-on-suspension-of-work-o...
5. BBC, 18 Jan 2019, 'Hitachi's Wylfa nuclear project delay 'not a stop'', https://www.bbc.com/news/uk-wales-46912615
6. Leonard Hyman & William Tilles, 21 Jan 2019, 'Hitachi Halts Nuclear Megaproject in the UK', https://oilprice.com/Energy/Energy-General/Hitachi-Halts-Nuclear-Megapro...
7. Stanley Reed, 17 Jan 2019, 'Hitachi to Cease Work on Nuclear Power Plant in North Wales', https://www.nytimes.com/2019/01/17/business/energy-environment/hitachi-h...
8. Hitachi, 17 Jan 2019, 'Hitachi Announces Suspension of UK Nuclear Power Stations Construction Project', http://www.hitachi.eu/en/press/hitachi-announces-suspension-uk-nuclear-p...
9. The Mainichi, 25 Dec 2018, 'Editorial: Japan must ditch nuclear plant exports for global trends in renewable energy', https://mainichi.jp/english/articles/20181225/p2a/00m/0na/011000c
10. World Nuclear Association, 17 Jan 2019, 'UK unveils financial terms it offered Hitachi', http://www.world-nuclear-news.org/Articles/UK-unveils-financial-terms-it...
11. Nikkei Asian Review, 2 Sept 2017, 'Hitachi UK reactors to get full Japanese loan insurance', https://asia.nikkei.com/Politics-Economy/Policy-Politics/Hitachi-UK-reac...
12. Alan Whitehead, Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), 17 Jan 2019, Statement to Parliament, https://www.theyworkforyou.com/debates/?id=2019-01-17a.1341.2&s=speaker%...
13. Science Media Centre, 17 Jan 2019, 'Expert reaction to news that Hitachi will halt work on Wylfa Newydd nuclear plant', http://www.sciencemediacentre.org/expert-reaction-to-hitachi-to-halt-wor...
14. Richard Black / ECIU, 5 Jan 2018, 'Nuclear: Time for open competition', http://eciu.net/blog/2018/nuclear-time-for-open-competition
15. https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...
16. Jonathon Porritt, 20 Jan 2019, 'Yet More Nails in the Nuclear Coffin', http://www.jonathonporritt.com/blog/yet-more-nails-nuclear-coffin
17. National Infrastructure Commission, July 2018, 'National Infrastructure Assessment', www.nic.org.uk/wp-content/uploads/CCS001_CCS0618917350-001_NIC-NIA_Acces...
18. Carbon Brief, 13 Nov 2018, 'The Carbon Brief Interview: Sir John Armitt', https://www.carbonbrief.org/the-carbon-brief-interview-john-armitt
19. Energy and Climate Intelligence Unit, Jan 2019, 'Briefing: Filling the nuclear gap', https://eciu.net/assets/Briefing-%E2%80%93-Filling-the-nuclear-gap-compr...
20. Gerard Wynn, 29 Nov 2017, 'IEEFA Update: More Questions on U.K. Nuclear Project', http://ieefa.org/ieefa-update-questions-u-k-nuclear-project/
21. World Nuclear Association, 23 Nov 2017, 'British MPs question value of Hinkley Point project', www.world-nuclear-news.org/NN-British-MPs-question-value-of-Hinkley-Poin...
22. Andy Stirling and Phil Johnstone, 23 Oct 2018, ', A global picture of industrial interdependencies between civil and military nuclear infrastructures', Nuclear Monitor #868, https://www.wiseinternational.org/nuclear-monitor/868/global-picture-ind...