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SSE nuclear exit imminent as sector faces serious questions

22 Sep 2011 17:27:25 | edem

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The economic risk surrounding new nuclear in the UK is driving some firms in the country's new-build programme to reconsider their involvement, a top analyst told ICIS Heren on Thursday - just hours after a giant utility confirmed it was considering exiting the sector.

Scottish and Southern Energy (SSE), one of the UK's "Big Six" energy suppliers, confirmed it was reviewing its 25% stake in the NuGen consortium with a view to walking away from the joint venture to concentrate on renewable development. SSE has no previous experience of nuclear power production.

Spanish firm Iberdrola, which already has a 37.5% stake in NuGen, is believed to be on the verge of acquiring SSE's stake. An Iberdrola spokesman said on Thursday that the company hoped to confirm the deal "before the end of the day".

Paris-based GDF SUEZ holds the remaining 37.5% share.

NuGen aims to develop a nuclear power station with up to 3.6GW capacity at its Sellafield site, in west Cumbria, northwestern England.

The consortium intends to prepare detailed plans to develop the site, with the aim of taking a final investment decision around 2015. The new nuclear facility could be up and running by 2023 (see EDEM 10 November 2010).

SSE has a high degree of experience in renewable energy, in contrast to its nuclear record. The firm already has 2.1GW of installed renewable capacity in place, with a huge 10.3GW in the pipeline.

Blow to nuclear hopes

The decision will be a blow to the UK government's hopes for new nuclear development, just as issues surrounding the economic viability of the country's new-build programme are coming to a head.

The government proposed a fixed-price tariff for power generated by low-carbon sources in its electricity market reform white paper (see EDEM 16 December 2010).

But SSE chief executive Ian Marchant has publicly hit out at the plans, saying they would create a flawed system and would "fundamentally undermine the importance and nature of the market", which had been a "major driver of innovation and investment" (see EDEM 2 February 2011).

Evolution Securities utilities analyst Lakis Athanasiou said on Thursday that the fixed-price tariff was keeping some firms, including SSE and Centrica - which has a 20% stake in nuclear giant EDF Energy's new-build plans - away from new nuclear.

"What point is there for someone like SSE or Centrica to invest in something like that?" said Athanasiou. "They want to sell production at a market price to hedge their positions. Having production which is sold at a fixed price is utterly pointless."

Although the sale of power produced from renewable assets will also fall under the fixed tariff regime, Athanasiou said such measures posed less risk to utilities with little nuclear experience.

UK energy secretary Chris Huhne has said repeatedly that a new generation of nuclear power plants - free from government subsidies - is a commercially viable proposition, despite the industry's concerns over huge up-front costs (see EDEM 20 May 2010). JS

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