Horizon Nuclear Power announced today that it will suspend its UK development programme for new nuclear power stations, following a decision taken by its parent company Hitachi. Horizon is developing the Wylfa Newydd nuclear plant on Anglesey in North Wales and has a second site at Oldbury on Severn in South Gloucestershire.  Hitachi has said it would post an estimated 300 billion yen (£2.14 billion) impairment loss as a result, plus 300 billion yen in other related losses.

Significant state support was not enough to ensure Wylfa was built

Speaking in the House of Commons today, Greg Clarke highlighted that Wylfa Newydd is “suspended” rather than cancelled, as the Government and the company will now engage on whether the project can be taken forward by looking at a different financing model. However, he also indicated that the Government had already made its best offer in terms of financial support and subsidy for the project, and that the falling costs of renewables were making the economics of nuclear more challenging.

“Firstly, the Government was willing to consider taking a one third equity stake in the project, alongside investment from Hitachi and Government of Japan agencies and other strategic partners. Secondly, the Government was willing to consider providing all of the required debt financing to complete construction. Thirdly, the Government agreed to consider providing a Contract for Difference to the project with a strike price expected to be no more £75 per megawatt hour.

I hope the House would agree that this is a significant and generous package of potential support that goes beyond what any Government has been willing to consider in the past. Despite this potential investment, and strong support from the Government of Japan, Hitachi have reached the view that the project still posed too great a commercial challenge, particularly given their desire to deconsolidate the project from their balance sheet and the likely level of return on their investment.”

The Government will now be exploring other approaches, including the viability of a Regulated Asset Base model for nuclear projects – an update on this is promised this summer at the latest.

Addressing the potential capacity gap

This news, following on from the cancellation of the Moorside project that was abandoned by Toshiba in November, means the government faces a supply shortfall in the late 2020s and early 2030s – together the three power stations would have supplied around 15% of GB electricity demand. BEIS has said, in response to today’s announcement, that there will be no implications to security of energy supply, however with the exit of coal and the growth in demand driven by electric vehicles, the Government will need to look hard at how long-term demand will be met. Any de-carbonisation of heat over this period would widen the potential supply gap.

Several MPs called in to question the lack of support for the Swansea Lagoon project, but Greg Clarke pointed out, rightly, that the tidal lagoon proposal would have delivered a significantly smaller output at significantly higher cost. There difficulties faced by new nuclear projects does not mean that un-economic renewables schemes should be re-visited, and the Government was correct to rule out the Swansea project.

In the Q&A after his statement, Greg Clarke re-iterated the desirability of a diverse energy mix, including nuclear, and re-stated the Government’s commitment to the new EPR at Sizewell C. It is unfortunate that one again the Government is faced with an EPR-or-nothing choice, given the many serious problems with the technology. Despite the funding issues at Wylfa Newydd, the details of which are not public, it is not clear that EPR is a superior approach to the ABWR, which has a proven track record and has in the past been delivered on time and on budget.

Small Modular Reactors (“SMR”) also featured significantly in the Parliamentary session today, with the Government considering a collaboration with Rolls Royce that would involve a “significant joint investment”. In November, the Government announced £32 million of funding for SMR testing, while in the US, the Nuclear Regulatory Commission granted phase I approval for the technology back in May 2018. SMRs are already being built in China and Russia.

Whichever technology route the Government supports, any discussion of future supply should take into account the variability of that supply. Greg Clarke and others in today’s debate highlighted the falling costs of renewable energy, however project costs ignore the costs of integrating intermittent generation which are fully borne by consumers through increased network costs and higher system balancing costs. In his review of energy markets, Dieter Helm said that “polluter pays” was less desirable than “intermittency creator pays” and that the creators of intermittency should pay for the costs they impose on the system.

This would radically change the economic balance between new nuclear and renewables. Large-scale new nuclear operating primarily in baseload format will impose few new costs to the wider electricity system since the system was designed to accommodate such large units of generation. If renewables projects bore the system costs they imposed, there would be a more level playing field between the technologies, and the economics of new nuclear could well become more attractive.

Exploring a regulated asset model for new nuclear is also sensible, reflecting the sheer scale of the investment required for new large nuclear plant, which is now all but out of reach for any individual commercial entity (EDF, being 84% owned by the French state is arguably not a typical commercial entity).

It would be a good outcome if today’s news on Wylfa (and Oldbury) led to a more equitable and cost-reflective analysis of new energy projects, however, despite the clear recommendation in the Helm Review (which was commissioned by the Government), such a move would be politically challenging and it seems unlikely, against the current political backdrop, that the Government would attempt something so radical.

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