NuGen’s proposals for a nuclear power station at Moorside in West Cumbria have seen more twists and turns than a TV soap opera.
The £15bn project appeared to be in deep trouble last year when NuGen’s owner, Toshiba, was engulfed in a financial crisis.
The Korean Electric Power Company (Kepco) emerged as saviour, promising to buy NuGen from Toshiba and build its proven APR1400 reactor at Moorside.
Now that deal appears to be unravelling.
Toshiba announced this week that it had cancelled Kepco’s ‘preferred bidder’ status, allowing it to talk to other potential buyers.
At the same time, Toshiba put NuGen’s entire workforce at risk of redundancy – a formal consultation on the proposal began on Wednesday.
So what has gone wrong?
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, believes the Government’s reluctance to invest directly in Moorside is the root cause.
He said: “Toshiba is keen to divest itself of NuGen and is clearly frustrated that Kepco has yet to conclude the deal.
“Withdrawing ‘preferred bidder’ status may be a way of Toshiba putting pressure on Kepco and the UK Government to get their act together.
“It is almost certainly no coincidence that all this has happened within weeks of Ministers publishing their ‘Sector Deal’ for nuclear.
“This states that, while the Government is prepared to invest directly in Horizon’s Wylfa Newydd nuclear project in North Wales, it isn’t prepared to invest in Moorside or any subsequent nuclear power stations.”
It is almost certainly no coincidence that all this has happened within weeks of Ministers publishing their ‘Sector Deal’ for nuclear
Instead, the Sector Deal advocates the ‘regulated asset base’ model for funding Moorside.
This is a method used in the utility sector to facilitate investment.
The model guarantees that the utility company’s investment will be recovered over time from consumers, albeit under the constraint of a price cap.
The guarantee makes investments relatively low risk and so brings the cost of raising finance close to that for financing government borrowing, even though the borrower is the utility company – not the Government.
Ministers believe this should help to achieve savings of around 30% in nuclear build costs and so ensure that the electricity generated is cheaper.
But the private-sector developer is left with a huge debt on its balance sheet and might have to wait many years to recoup its outlay.
Rob said: “We think this is the cause of the impasse. When Kepco realised that the UK government wasn’t going to invest as a partner, their enthusiasm for Moorside waned overnight.”
His analysis is supported by media reports in South Korea.
The Korean Joongang Daily quotes an industry source as saying: “The rate of return has to be at an acceptable level for Kepco.
“If it falls to one-to-two per cent per year, it would be hard for the company to push forward with the negotiation.”
State-owned Kepco recently completed a nuclear project in the United Arab Emirates, which offered a return of between seven and eight per cent per year.
Rob believes that the Government must invest alongside Kepco as a partner in Moorside if the project is to be salvaged.
The rate of return has to be at an acceptable level for Kepco
He said: “Time is of the essence. It would be a tragedy if the expertise and knowledge at NuGen were to be lost if Toshiba makes mass redundancies.
“We have argued consistently that the Government should invest in Moorside, alongside the private sector, to de-risk the project and bring down the cost while allowing the developer to make a fair return.”
That view is gaining traction.
The Sellafield unions want the Government to invest directly while Cumbrian MPs Trudy Harrison, Sue Hayman, John Woodcock and John Stevenson are calling on Ministers to intervene.
Rob added: “We know that Moorside is crucial to Cumbria’s prosperity, with on-site employment for up to 6,000 people during construction and 1,000 permanent jobs once it is operational.
“But it is even more important to the country as a whole.
“Moorside would generate around 7% of the UK’s electricity. It’s difficult to see how that demand will be met without nuclear new build.
“The Government expects up to 36m electric vehicles to be on our roads by 2040, which will lead to a huge increase in demand for electricity.
“We’ve seen the forecasts from National Grid, and they’re alarming. They predict a huge increase in generating capacity from 103GW now to at least 189GW by 2050, and perhaps as much as 268GW.
“Cancelling Moorside is not an option. The Government needs to recognise this and work with NuGen, Toshiba and Kepco to find a solution.”
If Kepco does pull out, it would add another twist to the NuGen saga.
NuGen was established in 2009 by GDF Suez of France, SSE of the UK and Spain’s Iberdrola.
SSE withdrew in 2011, while Iberdrola sold its stake to Toshiba in 2014.
Then last year GDF Suez, by then re-named ENGIE, triggered an exit clause in its contract with NuGen forcing Toshiba to buy its stake and leaving the troubled Japanese company as the sole shareholder.
Kepco has been involved in talks to buy into NuGen since 2013.