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UK's new nuclear electricity investment may hinge on Hinkley – Huhne

18 Nov 2011 13:30:43 | edem

The funding challenge facing the UK nuclear industry is being magnified by increasing construction risk, and the issue could ultimately threaten investment in the government's huge new-build programme, Energy Secretary Chris Huhne fears.

The main danger to the programme, according to Huhne, is that the industry may have problems attracting the huge investment required if the first of the new plants, Hinkley Point C, suffers major delays or cost overruns.

"The biggest risk is that if the industry doesn't deliver such big projects on budget and on time, then it will fail to persuade investors to come forward. If I had to identify one problem, it would be the construction risk," Huhne told the UK parliament's Energy and Climate Change Committee last week.

The industry is facing unprecedented challenges to realising the country's new-build ambitions.

The UK plans to build eight new nuclear power plants via private sector investment to replace its existing fleet of 16 reactors across nine power plants. The new-build programme amounts to approximately 20GW in capacity (see table), compared with the 10.7GW of installed capacity available today.

The programme is considered vital to energy security because, over the next decade, about one-quarter of the UK's power generation capacity is due to close, either through reaching the end of its life span, or under the EU's large combustion plant directive (LCPD), which will take 10.7GW of capacity off line (see EDEM 10 November 2011).

The £40bn bill

The first of the new nuclear fleet, Hinkley Point C, is expected online in 2019 (see EDEM 28 October 2011).

The plant, being developed by French nuclear giant EDF Energy, is on course to be the third European Pressurised Reactor (EPR) across Europe. But the plant type has a history of cost overruns and delays - Huhne's two big fears.

Mainland Europe's first two EPRs are being built in France and Finland. EDF Energy, which is developing the French reactor, said most recently that it would not come on line until 2016 - four years later than planned (see EDEM 21 July 2011).

In Finland, construction disruptions to the Olkiluoto 3 plant may delay commercial operations until 2014, Finnish utility Teollisuuden Voima said in October - a five-year delay (see EDEM 12 October 2011).

"The prospects [for the next EPRs] are not as rosy as they would have looked - or we would have assumed them to have looked four or five years ago," said William Nuttall, assistant director at Cambridge University's Electricity Policy Research Group.

The bill for new atomic power in the UK is estimated at £40bn (€47bn) over the next two decades by the Nuclear Industry Association.

EDF is set to make its final investment decision regarding Hinkley Point at the end of next year.

Beyond this, Horizon Nuclear Power, a joint venture of German utilities E.ON and RWE that is planning to build new plants at Oldbury and Wylfa, is believed to be seeking a €5bn cash injection in return for a 25% stake in the projects, according to reports. The utilities refuse to comment on the matter.

The third entity behind the programme, NuGen, ran into trouble in September when UK utility SSE pulled out of the scheme amid talk of the econonomic risk surrounding new nuclear power (see EDEM 22 September 2011).

The remaining partners in NuGen - Spanish utility Iberdrola and France's GDF SUEZ, expect to take the final investment decision regarding their planned 3.6GW plant in 2015.

Private entities

"The power of initiative in large power plant construction is very much with private entities in our liberalised power market," Nuttall said. "There's a limited depth to their pockets."

This is particularly true in the light of events in Germany. RWE's net income amounted to €1.4bn from January to September this year - a decline of 46% compared with the same period last year, after the company was hit by Germany's nuclear phase-out decision (see EDEM 10 November 2011).

In August, the utility announced it would raise planned divestments to €11.0bn from €8.0bn in order to reduce its debt.

E.ON's adjusted profits for the period from January to September amounted to €1.6bn, an even more pronounced year-on-year fall of 64%.

Despite the declines, a spokesman for Horizon Nuclear Power confirmed on Thursday that the joint venture was still on course for a 2015 investment decision, in line with the NuGen consortium's schedule.

Nuttall did not see any future investment being jeopardised by potential delays at Hinkley Point C, saying it was "not a reality" that he imagined in today's industry.

But he added that the gravity of the final investment decision was no less vital. "These private consortia are the place where the doubt sits and that's different to other countries," he said. "It's very much an investment decision, and these investment decisions are determiners of future British energy policy." JS

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