UK nuclear energy setback as reactor plan falls through

BRITAIN’S PLANS for a new generation of nuclear plants suffered a setback after two German companies pulled out of multibillion-pound plans to build reactors, citing the economic crisis and the German government’s decision to abandon nuclear power.

The utility companies Eon and RWE said they had decided not to proceed with plans to build plants and were putting their Horizon joint venture up for sale.

“The decision was based on strategic grounds as well as the financial constraints of the two companies,” said Tony Cocker, chief executive of Eon UK, citing the recession, relatively high gas prices in Europe and the nuclear phase-out in Germany as key reasons.

“We, therefore, have less financial power than we had,” he said, adding that both companies remained committed to investing in other forms of energy generation in the UK.

The decision to sell the joint venture is a setback for the UK and could delay plans for up to 12 reactors that form a crucial part of the government’s ambition to promote low-carbon sources of electricity while keeping the lights on.

Eon and RWE were among four utilities planning to build reactors in the UK.

The government insisted its plans were on track and said the withdrawal was “based on pressures elsewhere in their businesses and not any doubts about the role of nuclear in the UK’s energy future”.

One person familiar with the government’s thinking insisted: “Of course this is a pain in the neck but it’s a frustration; it does not mean Britain’s plans are in disarray.”

Other utilities and financial investors, including sovereign wealth funds, are seen as possible buyers for Horizon.

Andrew Horstead, energy risk analyst at Utilyx, said: “The UK is paying the price of Germany’s decision to pull out of nuclear and the subsequent massive losses endured by both RWE and Eon, which have clearly taken stock of the current economic conditions and decided that the time is not right to be investing such massive sums in new capacity.”

The government is reforming the electricity market, in part to make it more attractive for companies to overcome the high capital cost of building reactors or offshore wind farms. One element of the reform includes long-term contracts that would pay a steady rate of return for energy over the lifetime of new plants.

Horizon has sites in Wales and the west of England and had planned to start construction of the first reactor by 2015. It was about to choose the design for its reactors. Unless a new owner is found, it would leave just two consortiums: one led by EDF Energy, a subsidiary of French utility EDF, with Centrica of the UK, and one made up of GDF Suez of France and Iberdrola of Spain. SSE, the UK utility, pulled out of the latter consortium last year. – Copyright The Financial Times Limited 2012