The £10bn Moorside project to build a nuclear power station next to Sellafield would be the largest investment Cumbria has ever seen. But the chances of it coming to fruition have receded as NuGen, the developer behind the scheme, suffered a series of setbacks this year.
The latest came this week when ENGIE, the French company which owns 40 per cent of NuGen, announced it had triggered a clause allowing it to sell its stake to the other partner, Toshiba, for £111m. The decision was precipitated by an unfolding crisis at Toshiba, which is facing a £5bn writedown on in its US nuclear business.
The Japanese company has seen its share price halve and its credit rating cut, prompting an announcement in February that it planned to sell its stake in NuGen before construction of Moorside begins.
Then last week Toshiba’s US subsidiary Westinghouse, which was to have supplied its AP1000 reactor design for Moorside, announced that it was filing for bankruptcy protection under US Chapter 11 legislation.
That was the event that allowed ENGIE to exercise an exit clause in its contract with NuGen, forcing Toshiba to buy its stake.
So we are left with Toshiba as the sole backer of Moorside, a company that has neither the will nor the wherewithal to deliver the project. That is a gloomy scenario, but is not as hopeless as it looks.
Firstly, some industry analysts argue that consolidating ENGIE’s shares under Toshiba’s control will make it easier to sell the holding to a third party.
Secondly, there is a potential investor in the wings. Korea Electric Power Corporation (Kepco) has been involved in talks to buy into NuGen since 2013.
Greg Clark, the Secretary of State for Business, Energy and Industrial Strategy, was in South Korea for talks this week and his department has confirmed that those discussions included “potential civil nuclear projects.”
There are two unanswered questions around Kepco, however.
Firstly, how big a stake in NuGen would it be prepared to take? Kepco has said it is interested in buying into NuGen, but not that it is willing to take sole responsibility for delivering the project.
And secondly, would Kepco be prepared to use Westinghouse’s AP1000 reactor design or would it insist on using its own reactor model, the APR1400?
The AP1000 has just achieved regulatory approval in the UK, but the APR1400 would have to start the approval process from scratch, potentially delaying Moorside by four to five years.
As things stand, NuGen is due to make the final investment decision on Moorside next year. Construction would start in the early 2020s with the first of the three reactors on stream by 2025.
Perhaps the strongest argument in Moorside’s favour is that it is vital for the UK’s energy security. Cumbrians have tended to focus on the impact in the county – up to 6,000 people working on construction at any one time, and 1,000 permanent jobs once the power station is functioning.
We forget that Moorside’s 3.6GW output will supply just over seven per cent of the UK’s electricity. If it doesn’t happen, it would be difficult to make up that gap elsewhere as older nuclear and coal-fired stations are phased out. The Government has a vested interest in making Moorside a reality.
Cumbria Chamber of Commerce’s view is that the government will have to take an equity stake in NuGen if the scheme is to proceed. That has been our view for some time and it has been strengthened by ENGIE’s decision to pull out.
ENGIE is only the latest investor to jump off the NuGen merry-go-round. The original partners were ENGIE (then GDF Suez), SSE and Spain’s Iberdrola. SSE withdrew in 2011, while Iberdrola sold its stake to Toshiba in 2014.
“It is crucial that we have a stable and competitive energy supply for business, and to that end we think the Government needs to review its decision to be hands off.”
Chamber Chief Executive Rob Johnston said: “It is crucial that we have a stable and competitive energy supply for business, and to that end we think the Government needs to review its decision to be hands off. The Government should take a stake in NuGen, sharing the risk and potential rewards with the private sector.”
Interestingly, the Financial Times reported in February that the Government is reconsidering its position to leave nuclear entirely to the private sector.
It said that Chancellor Philip Hammond and Greg Clark had held discussions on the matter, and that the process had been given added impetus by the financial problems at Toshiba. However, the Government would want to ensure that any state support is “financially engineered” in a way that avoids adding to public debt.
Rob argues that government investment would de-risk the Moorside project, and that would mean a lower strike price for the electricity generated – a criticism of the Hinkley Point nuclear project in Somerset is that the developer there has been guaranteed too high a price for the electricity generated.
Rob said: “Hinkley Point has shown that, because of the risks involved in building nuclear, the Government has to guarantee a high price for the electricity in order to secure investment, and high electricity prices make businesses uncompetitive.
“A government stake in NuGen would ensure Moorside goes ahead, reduce the cost of the electricity generated and ultimately benefit the public finances.”
He added: “The UK is the world’s fifth biggest economy. We are stepping out into a competitive post-Brexit environment and we need our energy costs to be competitive. If other countries’ governments are prepared to invest directly in nuclear energy, why shouldn’t we?”© Cumbria Chamber of Commerce