Things aren’t quite what they seem (1)

Two weeks ago, at last, the sale of the  Horizon nuclear power plant consortium was announced.  Abandoned by its previous owners and investors, RWE and Eon in March, the end of the two companies’ joint investment plans was a substantial blow to the Government’s hopes and plans of building 16gw of new nuclear plant by 2025.  Horizon had been going to supply at least 6gw of this on two sites  until its owners stated that there was ‘no appetite for investment’ and stopped work.

So the purchase of the consortium’s interest for £700 million by Hitachi, the Japanese company making among other things nuclear reactors, was a big step forward. The Horizon programme would be renewed and the Government said at the time, in the shape of the Prime Minister, “this is a decades-long, multi-billion pound vote of confidence in the UK, that will contribute vital new infrastructure to power our economy.”

So that’s all right. Nuclear programme back on track, with a new company in the saddle, partnered by General Electric.  Well, not exactly. To start with, Hitachi is purveying a reactor design built before but not entered into the process of Generic Design Assessment (GDA) set up to quality test proposed new reactor designs six years ago . At the time, Hitachi had no interest in the UK, being occupied with new build in Japan. So the boiling water reactor will need to go through the up-to-four year GDA process, which the previous proposed Horizon reactors on their sites had almost completed.  But that’s OK, suggest Hitachi, because despite this loss of time, the proven track record that Hitachi have of speedy build will set the programme back on track.

But that’s where the second problem comes in. Hitachi are not proposing to invest any money in any new power stations (and nor are General Electric). What they have essentially done is to purchase a captured option for one, possibly two new power stations guaranteed to use the Hitachi Boiling Water reactor, if they get built. In short, it’s a flyer on the possibility of a new build, whereupon the £700 million will be recouped. If there is no build, then it probably won’t cost Hitachi £700 million anyway.

So how are the new power stations going to get built with their gleaming new Hitachi reactors in place? Why they will look out for investors, of course, of which there are none right now. Which sort of brings us full circle and back to the point where RWE and Eon, with a generically approved reactor virtually on board, said they couldn’t find any investors to  get the show on the road – and they WERE investing something themselves.

Unless of course, the Government, under pressure to get something moving, gives away a stupidly high strike price to EDF for their proposed nuclear electricity generation, which they will be bound to match for Hitachi, or decides that , state aid risks or not, they will have to swallow hard  and subsidise new build.  At which  juncture the £700 million flyer will begin to look like good business.

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3 thoughts on “Things aren’t quite what they seem (1)

  1. Obviously the Prime Minister does not agree. See this extract from Hansard .
    31 Oct 2012 : Column 229

    Edward Miliband: The Prime Minister’s Energy Minister says he is against wind farms and enough is enough, while his Energy Secretary says he is gung-ho for them. Who speaks for the Government—the Energy Secretary or the Energy Minister?
    The Prime Minister: Today the jokes have been bad and the substance has been bad too. It is not a good day. I will tell you why it is a good day to talk about energy policy—because today Hitachi is investing £20 billion in our nuclear industry.

    Surely the Prime Minister cannot have been exaggerating?

  2. Hitachi is motivated by the fall out from Fukushima, as nuclear has closed down in Japan. It now has to chase foreign contracts which it was previously uninterested in. As well as the UK, it is now in Lithuania. See this blog

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