China pull out leaves nuclear uncertainty
3rd Oct 2012
Antony Froggatt is Senior Research Fellow, Energy, Environment and Resources at Chatham House and co-author, with Mycle Schneider, of the World Nuclear Status Report
The European power and utilities sector is facing an unprecedented need for capital investment as European generation assets come to the end of their economic life.
The UK government is intent on building a new generation of nuclear plants, but with European and now probably Chinese investors withdrawing it is likely to be reliant on private money and new technologies from countries including Canada, Japan and the US.
Together with the pressure of new infrastructure to meet low carbon and environmental objectives the European Commission and others estimate that €1 trillion of new investment is needed over the next decade. This, along with the financial crisis engulfing much of Europe is leading to new trends in the power and utility sector.
The UK power sector is reflecting many of these trends, with cash-strapped companies strengthening their balance sheets by divesting their non-core assets and encouraging new investment from state-backed power and utility firms – from cash-surplus countries.
Following a competitive process in 2009, three nuclear consortiums Electricité de France (EdF), Horizon and NUGeneration (NuGen) were allocated sites for new nuclear construction.
However, in September 2011, the UK utility, SSE, exited the NuGen nuclear group by selling out to partners Iberdrola and GDF-Suez.
Then in September 2012 it was reported that Iberdrola would quit the group, leaving GDF-Suez as the sole party and unlikely to go it alone.
The other major withdrawal from new nuclear projects took place in March 2012, when RWE and E.ON pulled out of their Horizon joint venture citing global economic conditions, a shortage of capital, and the accelerated phase-out of nuclear power in Germany as reasons for their exit.
RWE and E.ON were planning investments of approximately $23 billion to develop 6GW of nuclear power across two approved sites – Wylfra and Oldbury – by 2025.
However, these nuclear plans were not abandoned altogether and Horizon nuclear was been put up for sale, with three companies initially reportedly to be preparing bids.
Chinese interest withdrawn
Two of these suggested bids involved state-backed Chinese enterprises, the first with Westinghouse, the Japanese-owned nuclear reactor manufacturer, in partnership with State Nuclear Power Technology Corporation (SNPTC) of China to build its AP1000.
The second with AREVA, the French state-controlled nuclear reactor manufacturer, in partnership with China Guangdong Nuclear Power Corporation (CGNPC) to build the EPR reactor.
The final bid is from Hitachi with SNC-Lavalin (Canada’s largest engineering group) probably proposing its Advanced Boiling Water Reactor design.
It should be noted that this design is not currently in the licensing review process, which will delay any construction process and creates additional uncertainties.
But recently the Financial Times reported that the heavily trailed involvement of Chinese companies did not materialise, for reasons which remain unclear. This led to the abandonment of the Areva/CGNPC bid and Westinghouse going it alone.
Undoubtedly, Horizon would have been relieved to have still received two bids and an even greater cheer may have been heard in Whitehall where officials have been actively working in recent months to attract bidders.
The UK Government has an ambitious vision for nuclear power and would still like to see the start of construction of up to 10 nuclear reactors over the next decade.
However, this is well beyond the capability of EdF, the only concrete nuclear proposal currently on the table - a situation which gives the French state owned firm a potentially overly strong negotiating position.
That negotiating strength is important now, as the government is understood to be working on the guarenteed future price paid by consumers for nuclear power as part of Electricity Market Reform (EMR).
Press reports, not being denied by EdF, suggest that the price they are seeking is in excess of £100/MWh, double the current market price of electricity.
This is so high that even a pro-nuclear lobby group has written to the Chancellor in the UK to block any price deal with companies building nuclear stations “unless and until you are absolutely satisfied the nation is getting value for money.”
The group Supporters Of Nuclear Energy (SONE) have argued that the suggested ‘strike price’ would cost the consumer vast sums and create excessive profits for EdF.
In coming months there will be a trio of key decisions, firstly, which if any consortium will take over Horizon nuclear? What will be the fixed price for new nuclear generated electricity? Under what conditions will it happen? And what do other market actors, in particular the European Commission, think of these proposals?
Only after these will the future of nuclear new build in the UK become clearer.
Antony Froggatt is co-author, with Mycle Schneider, of the World Nuclear Status Report