UK government 'to take stake in Wylfa NPP'

1 June 2018

Following weeks of speculation is has emerged that the UK government is about to agree an investment deal with Hitachi, owner of the 2.9 GW Wylfa Newydd nuclear power project in Anglesey, North Wales. An announcement is due, in the week of 4 June, that it will help to fund the construction of the plant, which could cost more than £15 billion, and could rise to £20 billion. The deal should reduce energy bills to consumers when Wylfa is up and running, but it could expose the government to a greater risk from cost overruns as it will own a direct stake.

The scale of the government’s investment is not known but it is expected that Britain, Hitachi and the Japanese government will all invest equity and the British government will also offer guarantees to underwrite billions of pounds of loans for the plant.

The news follows rumours during the previous week that Hitachi would ask the UK government to take a direct stake in its subsidiary, Horizon Nuclear Power, the company that is to build and operate a nuclear power plant. These were heightened by reports that the government would offer £13.3 bn in undefined financial support. It was also rumoured that Hitachi wished to postpone completion by two years, to 2027. The new delay is apparently due to the difficulty of raising finance.

The report, from Japanese news agency Kyodo, cited sources saying the request was aimed at easing concerns about the project costs, which have risen to £20 bn from the initial £10 bn estimate.

At the time UK government officials said they did not recognise the reported claims. The Department for Business, Energy and Industrial Strategy (BEIS) said discussions were "commercially sensitive and ongoing". A Horizon spokesman said: "Given the size of the investment involved and the nature of the project, these discussions are complex and detailed.”

Hitachi's Horizon Nuclear Power hopes to start building on Anglesey in 2020. The Wylfa project is currently 100% owned by Hitachi Group. Hitachi expected the UK government to invite private British companies to participate and hoped to reduce its own stake to less than 50%.

Hitachi had concluded that the risk of proceeding with the Anglesey project, at an estimated cost of more than 3 trillion yen ($27.5 billion), was too great to manage on its own as a private company. It planned to withdraw from the project if restructuring negotiations fell through. Such a move would have significant repercussions for nuclear power policy for both Britain and Japan.

Hitachi acquired complete ownership of the Horizon Nuclear Power in 2012 for 89 billion yen as part of its plan to expand its nuclear business into foreign markets. It has spent about 200 billion yen preparing for Horizon's first project, the construction of the Wylfa plant, but hopes to lower its stake in Horizon to less than 50% before construction begins.

In response to Hitachi's concerns, the British government initially proposed that UK interests and Japanese public and private interests join with Hitachi to move Anglesey forward. The three sets of shareholders would each put 300 billion yen into the project, giving each a one-third stake. According to sources, the company and the Japanese government see it as too risky for Japanese interests to retain a majority shareholding and hope that British interests will acquire a controlling stake.

Other key project terms also remain unsettled, including the degree to which London would guarantee the 2 trillion yen in loans that Hitachi sees as needed to finance the development, and the price to be paid to Hitachi for the plant’s output. London's proposed price is 20% lower than that requested by Hitachi. The Japanese government plans to guarantee the project's loans.

The UK in December approved the design of the reactor that Hitachi plans to use in Anglesey. The project is now in its final pre-construction phase, with construction slated to begin next year. With its domestic nuclear industry still crippled by the legacy of the 2011 Fukushima nuclear disaster, Japan has been eager to promote nuclear exports.

The news about possible government involvement drew a strong response from head of Energy at Greenpeace UK Hannah Martin, who said “The market will not invest in new reactors, globally, and nuclear states are trying to minimise their own exposure to this failing industry. Apart from the UK, where for some inexplicable reason nuclear is still seen as a viable option. Unfortunately, when you’re the only customer, you can’t split the bill, and this what we're seeing now as reactor manufacturers insist on the UK taxpayer taking a stake in projects that no bank or hedge fund will touch. None of this economic pain is necessary, of course, there are now far cheaper low carbon options available, if only the government would stop looking back at the 20th century and imagining that it is the future."

Dr Doug Parr, chief scientist for Greenpeace UK commented: “The financial debacle that was the Hinkley deal is at risk of becoming just a starting point for new deals. Overseas nuclear companies want to build even more expensive plants than Hinkley in the UK, but with additional new demands for taxpayer support. Our government needs to realise that we should not be asked to fund the nuclear industries of other nations who want to build reactors in the UK because the public in their own backyards has rejected them".

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