Tuesday, 30 October 2012

Hitachi bid - more fantasy nuclear power?

The latest supposed breakthrough for the UK nuclear new build programme came with the announcement  that the Japanese nuclear constructors Hitachi had won a contest (with one other Japanese company, Toshiba, according to the FT) to build reactors abandoned by the former 'Horizon' consortium. But, as usual in the nuclear garden, all may very well be not quite what it seems from the press releases.

A new nuclear myth is busily being constructed by commentators that the only reason we have a blip in the nuclear power programme is that the German Government got the wobblies about nuclear power forcing E.ON and RWE out of the picture (nothing to do with nuclear power being far too expensive for the incentives likely to be offered, of course). But now others have rushed in to fill the gap. This new reactor programme, based on the Advanced Boiling Water Reactor (ABWR) is going to be cheap, quick to build and is all but a done deal.

Now pause for a moment, since, over the years, we have been subject to so much fantasy from the nuclear industry about their plans, costs etc, why should we suddenly believe everything stated in their press releases now?

The Advanced Boiling Water design has, let us say, a chequered history in terms of reliability. None of the four operational plants can so far, according to the World Nuclear Association (WNA) database (accessed 30/10/2012), boast a capacity factor of more than 73 per cent, and two of them have capacity factors less than 45 per cent (see WNA links below) - some wind power plant have capacity factors around this level, and they are supposed to be that way! A capacity factor is the amount a plant generates compared to the amount that would be generated if it was operating at full power all of the time. Nuclear power plans are costed on the basis that they will achieve capacity factors of 80-90 per cent. With a capacity factor of 45 per cent (plausible outcome based on experience) any nuclear power project comes out needing twice the power price to be an economic proposition!

 These ABWRs do not seem to be very cheap to build either. Currently three are under construction (according to 'wikipedia'); two in Japan, and one in China. The plant being built in China has been under construction since 1997, admittedly delayed by political controversy at times, but still an eye-wateringly long period. The reactor cost seems high even though interest charges will not, I guess, have been factored in, which will be a real killer for any nuclear project that has to be financed through the UK's proposed low carbon mechanism. So far no ABWR projects are being built in the west, with the reactor for one project initially planned in South Texas being cancelled last year. The costs had spiralled to a reported $14 billion for 1358 MW (wikipedia), a cost that compares broadly speaking, MW for MW, with the costs quoted for building Hinkley C.

It is strange. I have not seen any of this reality about high reported construction costs, experience of delay, and uninspiring capacity factors appear in the press coverage so far. But these facts, as opposed to the press release fantasy, mean that discussions of what 'strike' price the UK Government might offer to achieve standard commercial rates of return seem irrelevant. The figures just go off the chart. Only government underwriting with a very blank cheque seems likely to ensure that these projects go ahead........and somehow getting the project passed EU state-aid rules, which is another perhaps not-so-minor issue.

Again the question arises, why not instead invest in renewables and energy efficviency which have much more certain outcomes and cheaper costs? See previous blogs on this one.

 Hitachi/GE are busy announcing deals with engineering companies for various things to do with the project and one receives the impression from the press handouts that the potential 6.6 GW worth of developments at Wylfa and Oldbury are almost built subject to a bit of paper chasing about approval of reactor designs.

But one teensy weensy little detail remains to be settled about the promised nuclear power stations. Who will pay for them? Hitachi? Well, Hitachi are nuclear constructors - they contract to build plant for  other people. They did agree to take out a 20 per cent equity investment in a nuclear power plant in Lithuania (which the Lithuanians have just rejected in a referendum), but it seems unlikely they would take on 100 per cent of the equity never mind 100 per cent of the financing in total. Indeed, because the bulk of the Lithuanian proposal was financed by a state-guaranteed loan, Hitachi's contribution to the projected cost in fact comes out as rather less than 10 per cent. And according to the UK Government there will be no underwriting of construction costs, unless you catch energy ministers in a wavering moment (see previous blog). So the banks would not lend any money. Hitachi would have exactly the same problem as is faced by EDF or, for that matter, any other large company. They would have to finance the lot off their balance sheets.Their shareholders would face big risks and expect big returns, which pushes the required price to be paid for the nuclear electricity higher still.

Hitachi themselves are not in a position to derive income from the electricity generation - they need contracts with big electricity suppliers. This implies investment from electricity suppliers. So who are these other people who will invest in the power plant? - by 'people' I mean electricity companies with a big stake in UK electricity markets. In China and Japan, of course, the power plant are built for electricity utilities who are are monopoly retailers. This means that they can pass on any costs to their consumers. This cannot, as explained earlier, be done under the UK's liberalised electricity market arrangements -even if Hitachi did interest electricity majors to invest in their project. And the UK Government are unlikely, short of the blank cheque option, to offer a high enough strike price to make nuclear power stations commercially viable under the 'low carbon mechanism' projected as part of the Government's Electricity Market Reform package (coming soon to Parliament, on November 19th I am told).

One might ask why Hitachi/GE are buying up the option. The Financial Times suggests that the loss of business in Japan is impelling the company to take up 'risky' options.
See http://www.ft.com/cms/s/0/174ae282-227e-11e2-b606-00144feabdc0.html#axzz2AoAttZBC

It does sound like desperation. The FT quotes an international lawyer specialising in nuclear power as commenting that 'What they're really buying here is an option to build reactors, without all the fundamentals in place'. The fundamentals seem unlikely to be in place to deliver Hitachi or anybody else the sort of returns that can give a commercial justification for nuclear power in the UK. So the project looks unlikely.

Nevertheless the UK Government and nuclear proponents are keen to collaborate in all of this to keep up the myth that nuclear-is-cheap-reliable-and-coming-soon, so the fantasy continues........Everyone is a winner, except perhaps the Lithuanians who could be left with a misleading impression about what is really happening in the UK.

Learn about policy options for implementing renewable energy by making amendments under the forthcoming Government Energy Bill at a Conference on January 18th at the University of Birmingham: http://www.claverton-energy.com/wp-content/uploads/2012/11/Feeding-Renewable-Policy_yc_5_10_2012.pdf

You can study some links here for details about the performance and background of Advanced Boiling Water reactors:


http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=F98DE7C7-0F7F-467C-B98C-8E633BBD50D5 44.6

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=BF928D6F-9277-4E05-BF0F-2658DC973FEA 72.8

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=15DA1AEF-B63E-4EBA-827B-7280559C93B1  68.2

http://world-nuclear.org/NuclearDatabase/reactordetails.aspx?id=27570&rid=A14A17FA-9566-494A-8975-2B6D5F8D41E8      44

world nuclear database http://world-nuclear.org/NuclearDatabase/Default.aspx?id=27232

For details of the Lithuanian deal involving Hitachi, see http://www.osw.waw.pl/en/publikacje/osw-commentary/2012-07-26/visaginas-nuclear-power-plant-still-highrisk-investment

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