The UK’s nuclear future comes down to France

10 Apr, 2012

E.ON and RWE’s recent decision to sell out of their Horizon UK nuclear development joint venture, leaves the prospects for the UK’s new nuclear fleet looking very shaky.  The withdrawal of the German utilities is not surprising given the post-Fukushima obstacles to nuclear development in the German market and most of its neighbours.  The move is also consistent with the concerted effort both companies are making to reduce balance sheet debt burden.

But German withdrawal effectively leaves the development of UK nuclear generation, a pillar of the government’s energy and decarbonisation policies, in the hands of the French.   Government concerns over this were concisely summed up by the nervous denial of the Energy Minister Charles Hendry after the Horizon announcement: 

“The UK’s new nuclear programme is far more than one consortia and there remains considerable interest”.

It looks like France or nothing

Aside from Horizon there are two other active nuclear development entities in the UK:  

  • The EDF(80%) and Centrica(20%) consortia, also known as NNB Generation
  • The GDF(50%) and Iberdrola (50%) consortia, also known as Nugen.

While there are four company names involved, the French state and nuclear engineering company Areva are the key drivers behind both consortia.  The European Pressurised Reactor (EPR) technology that Areva is currently developing, and that EDF and Areva are currently seeking regulatory approval for, will be the critical component of any UK project. 

The 1650MW EDF/Areva  nuclear project in Flamanville, France is a ‘pilot’ project for the EPR technology.   Flamanville provides an indication of the scale of risks and costs associated with new nuclear development.   Originally due to be commissioned in 2012, the plant has now been delayed to at least 2016 and is running at double its original budget.   

The development of a new generation of UK nuclear plant will rely on EDF/Areva’s ability to deliver a viable project which can be cloned within the policy incentives established by the UK government under EMR.  Hinkley Point C is their test case project in the UK, although a commitment decision will not be made on this project until the end of this year at the earliest. 

In the meantime the Horizon sale increases the enormous leverage EDF has over the UK government in lobbying its policy agenda.  EDF has already secured a substantial advantage from the benefits of the carbon price floor to its existing nuclear fleet.  Behind the rhetoric, the government is no doubt acutely aware of the dependence of its nuclear ambitions on France.

UK nuclear site value is limited

Horizon owns development rights for the nuclear sites at Wylfa on Anglesey and Oldbury-on-Severn in Gloucestershire.  These are two of an initial list of eight sites across the UK, shown in Diagram 1.

Diagram 1: UK existing and new nuclear plant sites

EDF has already said it is not interested in acquiring the Horizon sites.   The GDF/Iberdrola consortia have only recently increased their stake in UK nuclear via buying SSE’s 25% stake in Nugen.  Beyond the two existing consortia it is difficult to see a strong strategic partner for Horizon, particularly given the implications for nuclear development post Fukushima.  

Perhaps the most promising bidder is Vattenfall, given Sweden is one of the few countries in Europe where the ‘end of life’ replacement of its domestic nuclear fleet is an open possibility.  But any bidder for Horizon is confronted with the harsh reality that:

  • Areva’s EPR technology is currently the only credible option for UK development and regulatory approval
  • There are more UK nuclear sites than credible projects for at least the next decade
  • There is considerable uncertainty around the level of support new nuclear developers will receive under the government’s EMR policies

So the list of bidders for Horizon will be thin and bidders are likely to assess the site value as an ‘out of the money’ option on an upturn in the fortunes of UK nuclear…  the likelihood of which looks to be firmly dependent of the French.