Japan's Hitachi Ltd. on Jan. 17 said it suspended work on its planned nuclear power station in Wales in a move that was widely expected but poses questions for the U.K.'s energy strategy as the country seeks to replace coal plants and aging nuclear reactors in the coming decade.
Hitachi said its board decided to halt the multibillion-pound project for a 2,900-MW power plant, Wylfa Newydd. In a statement, Hitachi left open the possibility of resuming work on the project at a later date but said that talks involving the British and Japanese governments over a financing structure had failed to provide sufficient investment security.
As a result of the suspension, Hitachi will post an impairment loss of approximately ¥300 billion for the fiscal year ending March 31, cutting its net income forecast for the period from ¥530 billion to ¥230 billion, it said.
The project was being developed on the island of Anglesey by Hitachi subsidiary Horizon Nuclear Power Ltd., which was acquired in 2012 from German utilities E.ON SE and RWE AG.
"Hitachi has decided to suspend the Horizon project from the viewpoint of its economic rationality as a private enterprise, as it is now clear that more time is needed to develop a financial structure for the Horizon project," Toshiaki Higashihara, Hitachi's president and CEO, said in a statement.
Greg Clark, the U.K.'s secretary of state for business, energy and industrial strategy, said in a statement to Parliament that Hitachi's follow-up project at Oldbury, near Bristol, England, also would be suspended. Clark reiterated the government's commitment to new nuclear power stations but said this would not come at any price.
The government had offered Hitachi a guaranteed strike price of no more than £75/MWh for power generated at the Wylfa plant, Clark said. This compares to more than £90/MWh for the only new nuclear power station currently under construction in the country, Electricité de France SA and China General Nuclear Power Corp.'s Hinkley Point C plant in Somerset, and less than £60/MWh for recently awarded offshore wind projects.
"The challenge of financing new nuclear [power] is one of falling costs and increasing abundance of alternatives," Clark said. "It is being outcompeted."
Clark said the government was willing to take a one-third equity stake in the plant alongside Hitachi and the Japanese government and had also considered providing all of the required debt financing, but this was not enough for Hitachi, which wanted to deconsolidate the project from its balance sheet.
Hitachi had asked the British government for more financial support to appease investor anxiety, but turmoil over the U.K.'s departure from the European Union limited the government's capacity to compile plans, Reuters reported, citing people close to the matter.
Hitachi said that it would "continue to discuss a nuclear power program" with the British government and the Department for Business, Energy and Industrial Strategy confirmed that the government would continue to engage with Hitachi on the project's future.
Tom Greatrex, chief executive of the Nuclear Industry Association, said the move was disappointing for the nuclear industry and added that Wylfa remains "a strong site" for a new nuclear power station. "The urgent need for further new nuclear capacity in the U.K. should not be underestimated, with all but one of the U.K.'s nuclear power plant due to come offline by 2030," Greatrex said in a statement. Nuclear reactors currently provide roughly one-fifth of the U.K.'s electricity.
The suspension follows widespread reports of the project's demise and comes only months after another Japanese conglomerate, Toshiba Corp., eliminated its nuclear subsidiary in the U.K., axing a proposed £15 billion, 3,400-MW nuclear power plant in northwest England.
An exit by Hitachi means that the U.K. has only a single nuclear plant under construction with Hinkley Point C, which is due online by the mid-2020s. That project has been plagued by construction delays and cost overruns.
Although the suspension of Wylfa marks a setback for the U.K.'s energy plans, it "should not cause alarm bells to start ringing," said Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, a London-based nonprofit organization. "Electricity authorities are by now very well-versed in coping with the nuclear industry's tendency to deliver late or not at all," Marshall said, pointing to other delayed projects in Finland and France.
Marshall said the government had quietly scaled back its nuclear expectations and that alternatives like renewables, coupled with a more flexible, smarter grid, were emerging as a more realistic option in the absence of a viable funding model for nuclear power plants.
Filling the gap left by high-capacity nuclear plants with renewables would require a much faster rollout, "but one that is well within U.K. capabilities," Marshall said.
The U.K. government is reviewing alternative funding models for future projects, including the so-called regulated asset base model, with plans to unveil findings later in 2019.
As of Jan. 16, US$1 was equivalent to ¥108.87.