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German energy giants abandon new nuclear electricity in the UK

29 Mar 2012 19:44:35 | edem

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Two of Europe's largest utilities abandoned plans to develop 6.3GW of new nuclear electricity capacity in the UK on Thursday, citing factors such as high capital costs and poor market conditions.

RWE and E.ON, both headquartered in Germany, said they will seek a buyer for joint venture Horizon Nuclear Power. One expert told ICIS that NuGen - one of only two remaining new nuclear developers in the UK - could be in the running to take control of Horizon's projects.

Horizon's plans for two third-generation nuclear power stations - a 3GW plant at Wylfa and a 3.3GW facility at Oldbury - remain at an advanced stage.

"We will now focus on consolidating the progress made and working with our shareholders as they investigate the opportunities for new ownership," Horizon chief operating officer Alan Rayment said.

RWE npower, UK subsidiary of RWE, put its exit down to the prohibitive up-front costs of new nuclear power.

"The global economic crisis has meant that capital for major projects is at a premium, and nuclear power projects are particularly large-scale, with very long lead times and payback periods," the company said.

The statement said the accelerated nuclear phase-out in Germany had taken its toll on the company's finances.

The prohibitive cost sentiment was echoed by E.ON chief executive Tony Cocker, who said: "E.ON has decided to focus its investment in the UK on other strategic projects, rather than the very long term and large investment new nuclear power calls for."

Putting in a bid

NuGen is a joint venture between Spanish firm Iberdrola and Paris-based GDF SUEZ. UK utility SSE pulled out of the consortium last September (see EDEM 22 September 2011).

Its plans to build a 3.6GW plant at Sellafield are less advanced than those of Horizon. A final investment decision is expected in 2015 (see EDEM 18 November 2011).

"If NuGen wanted a more advanced position than they have at the moment then this might be a good way of moving their position forward," Greenwich University professor of energy policy Stephen Thomas told ICIS.

NuGen was unavailable for comment.

The withdrawal of E.ON and RWE marked a tough two-day period for new nuclear in Europe, coming 24 hours after the Bulgarian energy ministry said it was abandoning the 2GW Belene nuclear power plant project (see EDEM 28 March 2012).

The economic viability of new nuclear power builds in the UK has been a controversial subject for the UK government, which has allowed nuclear operators to sell production volumes under its forthcoming feed-in tariff with contracts for difference mechanism. The instrument is the primary low-carbon power generation incentive measure under the Department of Energy and Climate Change's (DECC) electricity market reform package.

But the model came under criticism from the parliamentary Energy and Climate Change Committee, which said DECC had distorted its plans to "save political face" over implicit subsidies for nuclear power (see EDEM 16 May 2011) - a step the government had said it would not take.

Energy minister Charles Hendry on Thursday defended the government's stance and the market environment for new nuclear power in the UK: "EON and RWE's withdrawal is clearly very disappointing, but the partners have clearly explained that this decision was based on pressures elsewhere in their businesses and not any doubts about the role of nuclear [power] in the UK's energy future."

As recently as Tuesday, experts were insisting that the economic viability of new nuclear power was coming under increasing pressure as a result of the changing generation mix and the growth of renewables, alongside increased interconnection across Europe (see EDEM 28 March 2012). JS

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