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Utility Week 24th February 2017

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UTILITY WEEK | 24TH FEBRUARY - 2ND MARCH 2017 | 11 Policy & Regulation Analysis A s car crash press conferences go, it wasn't quite up there with Donald Trump's impromptu gathering of the White House press corps on Thursday last week. However, for the UK nuclear new-build programme, the chaotic briefing held at Toshiba's Tokyo headquarters two days ear- lier will have more momentous consequences. The Fortune 500 manu- facturing conglomerate announced it was delaying the publication of its quarterly earnings figures. The reason for the month-long pause is a $6 billion write-down in the value of the company's nuclear business aer cost overruns on two nuclear power plants it is building in the US. This is a problem for the UK nuclear industry because Toshiba holds a majority stake in NuGen, which is meant to be deliver- ing the 10.6GW plant at Moorside in Cum- bria. Toshiba says it intends to remain involved in the project, but that it is with- drawing from exposure to the project's con- struction risk in line with a broader exit from nuclear building work outside Japan. Toshiba is understood to be keen for its reactor and turbines to be used, effectively becoming a supplier. Kepco, South Korea's biggest electrical utility, remains the perceived front run- ner to take Toshiba's stake. The company is currently developing a fleet of four nuclear plants in the United Arab Emirates. Hitachi-backed Horizon's announce- ment last week that it was entering into a partnership with US operator Exelon will have calmed nerves about its own project to develop a new nuclear plant at Wylfa on the Isle of Anglesey. A spokesman for Horizon told Utility Week the company's commitment to the project is undimmed. However, the construction supply chain is getting twitchy about progress at the site. "Bringing an experienced operator like Exelon into the project is a good move but this only helps them get through the generic design assessment. If Exelon had a big wad of money to fund construction, then they would be even more attractive," says a sup- ply chain source. The uncertainty surrounding the delivery of nuclear new-build appears to be prompt- ing fresh thinking in govern- ment about how to support the programme. The Sunday Times reported that the department for Busi- ness, Energy and Industrial Strategy (BEIS) is working up plans for the government to take stakes in future nuclear new-build plants, like Moorside. Later in the week, the Finan- cial Times reported the govern- ment is seeking to achieve a 15-20 per cent discount on the strike price agreements used for future nuclear plants compared with the £92.50 sum agreed for Hinkley C. Utility Week has also learnt that the National Audit Office is taking a fresh look at the value for money of the Hinkley deal, which will heighten ministers' sensitivity about ensuring the project can't be seen to be bumping up electricity bills. Shadow energy minister Alan Whitehead argues the government must secure a bet- ter deal than that achieved on Hinkley to maintain public faith in the UK nuclear pro- gramme. He says an input of government cash would provide a "bedrock" of certainty that would give other investors greater confi- dence about getting involved. The supply chain source agrees: "Twenty- five per cent of funding would be sufficient to trigger other investment because they know there will be a big chunk of money coming in." He estimates that making use of the cheaper borrowing rates on offer to the gov- ernment would bring the overall cost of con- struction down by 15 per cent with knock-on impacts on the price of electricity generated at the plants. A bigger stake in nuclear? Some investors in the UK's nuclear new-build projects appear to be getting cold feet, and there are calls for the government to supply some pump-priming cash. David Blackman reports. "If we are going to meet the carbon reduc- tion commitments, it's hard not to see gov- ernment taking a bigger stake," says Dan Lewis, energy policy adviser to the Institute of Directors. But he worries about whether the govern- ment can afford to stump up the cash. The deficit may have slipped down the public agenda since the result of last June's Brexit referendum, but it is still colossal by historical standards, Lewis says: "There are so many calls on government capi- tal for infrastructure projects. We need to have a frugal approach to infrastructure, which means we are going to have say no to some things." Mycle Schneider, who has advised a num- ber of European governments on nuclear issues, agrees that the UK nuclear industry can't rely on the prospect of greater direct public support. "It's very clear that the public subsidy would be very limited. We are talking about very large sums of money. This is pie in the sky. If the government comes up with a few billion pounds, it will not be enough to fill the gap." Schneider argues that the UK govern- ment should be rethinking its approach to the energy mix by refocusing its efforts into encouraging renewable energy projects, which are delivering ever-more generation capacity. Whitehead argues though that the ben- efits of putting in money up front would out- weigh the costs of the initial investment. The Treasury is understood to be taking a bearish view of direct support for nuclear new-build. Next month's Budget will be an opportunity to demonstrate whether it has been won over. Moorside stats Construction cost £10 billion Reactor type AP1000 PWR Capacity 3.4GW Estimated commissioning date 2025 The uncertainty surrounding the delivery of nuclear new- build appears to be prompting fresh thinking in government about how to support the programme.

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