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Hitachi debacle strengthens Franco-Chinese hand in UK nuclear industry

13 Comments
By Geert De Clercq

Hitachi's decision to freeze its $28 billion nuclear power project in Britain strengthens the hand of France's EDF and its Chinese partner in talks with the government on how to finance new reactors.

Funding new nuclear plants has become critical as Hitachi became the second Japanese firm to say its British nuclear power project had hit the buffers over financing. The two projects would have covered about 13 percent of Britain's power needs.

EDF and its partner China General Nuclear Power Corporation(CGN) want to use a financing model under which investors in their nuclear projects receive payment from the moment they start construction, reducing their risk.

But to proceed with this approach, the government must first win over lawmakers and consumers, already frustrated by hefty energy bills and costly nuclear projects that often face delays.

"The question is whether it is sellable to parliament that all the risks go to the public. But if that is not the case, they will get no investors," said Stephen Thomas, emeritus professor of energy policy at Greenwich University.

EDF is negotiating with the government on funding the Sizewell C project using the so-called regulated asset base model in which investors earn a government-set fixed return from the start, instead of waiting years until construction is completed before receiving a return.

China General Nuclear Power Corporation (CGN) has a 20 percent stake in Sizewell C, while EDF has a 33.5 percent stake in CGN's project to build a reactor at Bradwell, Essex.

"If new nuclear is to be successful in a more competitive energy market – which I very much believe it can be – we need to consider a new approach to financing future projects," Energy Secretary Greg Clark told parliament, saying this included Sizewell and Bradwell.

He addressed lawmakers after Hitachi said it had failed to find private equity investors, even though the government had considered partly funding it with taxpayer's money.

That announcement followed Toshiba's decision in November to scrap its NuGen project in Britain after its U.S. reactor unit Westinghouse went bankrupt and it failed to find a buyer for the plan.

Specialists say both projects were doomed from the start.

Only utilities have the steady cash flows to fund such long-term projects, but most European utilities pulled out of Britain's nuclear plans after the 2011 Fukushima disaster led to rising safety costs and as renewable energy became a more competitive investment prospect.

The regulated asset base model may now be one of the few remaining options to fund new nuclear plants in Europe. It is commonly used to fund construction of electricity transmission lines and, in Britain, has been used to fund the Thames Tideway Tunnel, a "super sewer" for London.

"Dialogue about a regulated asset base financing model for Sizewell C is progressing," an EDF official said.

But the model has not be used in the nuclear industry, so talks are likely to be tough as the government seeks a clear outline of how much it would have to spend over a specified period and works to avoid writing a blank cheque to cover cost overruns.

The government intends to publish its assessment by the summer at the latest.

For now, the only nuclear plant under construction in Britain is EDF's Hinkley Point C project, in which CGN also has a 33.5 percent stake.

The deal to fund that plant involved EDF taking on the financing and bearing the full risk for construction delays or cost overruns. In return, it was guaranteed a power price of up to 92.50 pounds per megawatt-hour for 35 years, more than twice the market rate when signed.

That drew fierce criticism from lawmakers and the public for being too generous and there are no plans to repeat it.

After the Hitachi and Toshiba announcements, the government is now depending on just EDF and CGN to deliver on its plans for a fleet of new reactors to meet energy demand as it phases out old nuclear facilities and coal-fired plants.

"Britain's energy security and decarbonisation strategy are hanging by a thread," said French consultant Thibault Laconde.

© (c) Copyright Thomson Reuters 2019.

©2019 GPlusMedia Inc.

13 Comments
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Britian should make its own nuclear reactors.

3 ( +3 / -0 )

What a wasted deal, Interestingly enough, the UK invented trains and we sold them a shinkansen.

1 ( +1 / -0 )

That would be ideal, but unfortunately there's no money for it. Britain took on a tremendous amount of debt during the 2008 financial crisis and they've barely paid any of it back as health and social security spending continues to increase year after year. They can't even afford to keep providing free prescriptions of gluten free pizza crusts and biscuits on the NHS let alone a nuclear reactor.

https://www.england.nhs.uk/2018/11/gps-stopped-from-prescribing-gluten-free-pizzas-cakes-and-biscuits/

-1 ( +1 / -2 )

Having seen the behaviour of Japanese companies, and Japanese law recently, I would be far more comfortable with French / Chinese investment.

3 ( +4 / -1 )

Some very interesting comments here:

https://japantoday.com/category/business/japan%27s-hitachi-freezes-british-nuclear-project-1#comment-1814594

Thanks to Samit Basu for the enlightening post. The comments about the Chinese CGN design really don't fill one with confidence.

What a wasted deal, Interestingly enough, the UK invented trains and we sold them a shinkansen.

We? I thought you were American?

Sadly, and for reasons unknown, the Tory government decided not to give contracts to manufacture parts for the trains to British companies. Most are imported from Japan. British manufacturers were understandably upset:

https://www.theguardian.com/business/2016/dec/12/british-components-for-british-trains

-2 ( +0 / -2 )

Sadly, and for reasons unknown, the Tory government decided not to give contracts to manufacture parts for the trains to British companies. Most are imported from Japan. British manufacturers were understandably upset:

I am sure that this could be reversed very quickly.

-2 ( +0 / -2 )

Sadly, and for reasons unknown, the Tory government decided not to give contracts to manufacture parts for the trains to British companies.

The reasons are hardly unknown. Hitachi's UK based subsidiary won the competitive tendering bid.

I am sure that this could be reversed very quickly.

How? By scrapping the trains that have already been built, paying tens of millions in contractual penalties to Hitachi, paying unemployment benefits to hundreds of British workers who are building the trains at Hitachi's Darlington plant?

1 ( +1 / -0 )

Most are imported from Japan.

Care to back that up with some evidence?

"A new train factory has been opened in north-east England by Hitachi, and heralded by the prime minister and chancellor as a further boost for their plans for a “northern powerhouse”."

https://www.theguardian.com/uk-news/2015/sep/03/hitachi-factory-george-osborne-northern-powerhouse

2 ( +2 / -0 )

How? By scrapping the trains that have already been built, paying tens of millions in contractual penalties to Hitachi, paying unemployment benefits to hundreds of British workers who are building the trains at Hitachi's Darlington plant?

By honouring existing contracts, (unlike Japan who refuse to pay the final installment for the scrapped Olympic stadium) and maybe looking elsewhere. The cheapest deal is not always the best.

Actually, I love the Intercity 125 trains which run on UK's West Coast Line. I love that distinctive hum as they pull out of Paddington station.

1 ( +1 / -0 )

@Ex_Res

By honouring existing contracts, (unlike Japan who refuse to pay the final installment for the scrapped Olympic stadium) and maybe looking elsewhere.

I'm not sure I follow. The last Intercity 125 rolled off the assembly lines in the 1980s. To my knowledge there was no outstanding contract that the government failed to honour by ordering new rolling stock. But perhaps I've completely missed your point? As far as looking elsewhere, I think all of the major train manufacturers bid for this contract (Bombardier, Alstom, Siemens etc.) but Hitachi had the best bid (I'm not sure if it was necessarily the cheapest).

The cheapest deal is not always the best.

I agree that this is generally true in life, but these public procurement contracts are usually very strict. The contract would stipulate everything from fuel consumption, to durability of specific components, and probably even the required thread count on the seat covers. Any deviations from the bid contract would need to be cured at Hitachi's expense. Unless Hitachi goes bankrupt, the public is guaranteed to get exactly what was agreed for the exact price that was agreed. Competitive tendering is probably the most cost efficient, transparent and corruption free way of public procurement.

The alternative is to politicise the entire process like the Americans do with projects such as the F-22. Britain could opt to spend billions more and have at least one component of the train manufactured in every political constituency. Some additional jobs would be created, but the majority of taxpayers would lose by having politicians dole out corporate welfare and repay political favours to well connected people. For example Sir Andrew Cook CBE's anger at not being awarded any part of the contract might be better understood after you learn that he has donated millions to the Conservative party over the years.

Actually, I love the Intercity 125 trains which run on UK's West Coast Line. I love that distinctive hum as they pull out of Paddington station.

I can understand the nostalgia of such an iconic design, but I assume that at some point it would cost more to maintain the old 70-80s tech than to replace it.

0 ( +0 / -0 )

China is already the biggest player in the fourth generation nuclear reactors. There are simply too many legal obstacles for the western companies to catch up.

0 ( +0 / -0 )

@M3M3M3

 Britain took on a tremendous amount of debt during the 2008 financial crisis

Japan's "debt" is considerably higher and it can "afford" some of the world's most ambitious and costly industrial projects. In both countries, the debt is issued in a currency the country issues and thus should never be a restraint on such crucial public investment.

love the Intercity 125 trains 

Me too, I think more efficient, modern-day successors could be a great low-cost option to high-speed rail if managed properly.

0 ( +0 / -0 )

The new nuclear projects in the UK are massive risks. They have been shown to be on par with the cost of building renewables but nuclear plants often (not always, but often enough) go over-budget & run late. Seeing as construction will take up to a decade vs a year or two for the likes of wind turbines, what is the UK potentially passing up in the way of renewables & energy storage, given that they could even wait another 5 years to start?

Base load power is good for grid stability, but the likes of a few new gas fired power plants, combined with renewables seems a safer (and cheaper) option.

0 ( +0 / -0 )

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