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UTILITY Week 21st April 2017

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Finance & Investment UTILITY WEEK | 21ST - 27TH APRIL 2017 | 19 Analysis T he past month has seen contrasting news for UK nuclear new-build. On the positive front, the first cement pour has taken place at the long- delayed and highly controversial £24 billion, 3,200MW Hinkley Point C plant. It is due to be commissioned in the mid-2020s. On the negative front, the Moorside nuclear new-build project in Cumbria, which plans to build three AP1000 Westinghouse plants near the Sellafield nuclear reprocess- ing site, is in deep trouble – the damage may be terminal. Following a sharp fall in its share price, Japan-based Toshiba, with a 60 per cent stake in Moorside, has decided to withdraw from overseas nuclear projects. Its finances have been drastically under- mined by huge losses from US plants being built by its Westinghouse nuclear subsidiary, which it bought from British Nuclear Fuels in 2006. Westinghouse, an iconic name in US elec- trical engineering, was originally a major rival to Edison. Its eponymous founder transformed the US electricity industry – but his company is now being pushed into Chapter 11 bankruptcy. Furthermore, Engie (formerly GDF Suez) has wasted little time in triggering its legal right to exit the project; it is due to receive approximately £111 million for its 40 per cent stake. When the Moorside NuGen consortium was established in 2010, two major power companies, SSE and Iberdrola, were found- ing shareholders: they both exited some years ago. There are hopes that South Korea's highly respected Kepco may step in to fill the breach and save the Moorside project – but this may be wishful thinking. The latest developments affecting UK nuclear new-build are part of an ongoing saga. Aer all, ferocious debate has sur- rounded the Hinkley Point C project for years – with the eye-watering, index-linked £92.50/ MWh contract for difference (CfD) for 35 years being particularly controversial. There are other nuclear new-build pro- jects on the table though, at a far less advanced stage. In Anglesey, another Japanese company, Hitachi – through the Horizon consortium – is planning to build a successor to the Wylfa Magnox plant that is now being decommissioned. Perhaps not surprisingly, this project has encountered delays; if it were to proceed, it would not be commissioned for almost a decade. In eastern England, Chinese nuclear investment at both Bradwell and Sizewell have been widely discussed. State-owned – and Guangdong-based – Chinese General Nuclear (CGN) is very keen to install Chinese nuclear technology at these sites. Importantly, CGN is a minority shareholder in the Hinkley Point C project. Following Theresa May's appointment as prime minister, there was a pause before final clearance was given to the Hinkley Point C project, with deep-seated concerns about Chinese security issues reputedly being to the fore. Although the go-ahead was eventually given, there is no guarantee that a similar decision would be reached for Chinese investment in other nuclear projects. Elsewhere in Western Europe, nuclear new-build problems seem endemic. The third-generation plant at Olkiluoto in Finland – due to be a shop-window for nuclear new-build – is both many billions of euros over budget and many years behind schedule. EDF's experience with its first third- generation plant at Flamanville is almost as disastrous as costs soar and delays persist. In fact, approximately 85 per cent of EDF's shares are publicly owned, a very dif- ferent scenario from other players in the UK electricity supply industry. Yet, if some of the existing nuclear new- build projects are parked – a likely fate for Moorside – or collapse completely, it may only be the government that is prepared to step in and rescue them. Nigel Hawkins, director, Nigel Hawkins Associates Is Moorside sunk? The foundering of the NuGen consortium reflects endemic weaknesses in new nuclear projects across Europe, says Nigel Hawkins. Moorside milestones January 2009 – Iberdrola and SSE agree to form a joint venture to develop new nuclear plants in Britain. GDF Suez (now Engie) joins the alliance the following month. October 2009 – The partners acquire the right to buy a plot of land at Moorside in Cumbria from the Nuclear Decommissioning Authority and outline plans to build a new power station at the site. November 2010 – The NuGen consortium that will develop the plant is formally established. GDF Suez and Iberdrola each take a 37.5 per cent stake and SSE takes the remaining 25 per cent. September 2011 – SSE drops out of the consortium. GDF Suez and Iberdrola increase their shares in NuGen to 50 per cent each. December 2013 – Iberdrola withdraws from the consortium and agrees to sell its 50 per cent stake to Toshiba. January 2014 – Toshiba agrees to buy a further 10 per cent share from GDF Suez. The company announces that the plant will be powered by three AP1000 reactors supplied by its subsidiary Westinghouse. September 2016 – Aer talks stalled three years earlier, South Korean utility Kepco is reported to have entered discussions about joining NuGen. January 2017 – Toshiba announces it is reviewing its overseas nuclear activities as it faces a multi-billion-pound write-down on the acquisition of a nuclear construction firm by Westinghouse. February 2017 – Toshiba says it "remains committed" to Moorside. March 2017 – Westinghouse files for bankruptcy protection in the US. The next day, Westinghouse's AP1000 reactor is approved for use in the UK. April 2017 – BEIS secretary Greg Clark meets with Kepco to discuss investment in Moorside. Engie decides to sell its 40 per cent stake in NuGen by exercising a contractual right to offload its interest to Toshiba in the case of a default. The following week Toshiba posts a £4.2 billion loss in its delayed third quarter results and warns there is "substantial doubt" over its own survival.

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