UK: Horizon nuclear joint venture reduced to two bidders

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5 October 2012, Nuclear, Solar, Wind

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The deadline for bids to take over the Horizon nuclear joint venture - September 28, 2012 - came and went with just two of the three consortia still in the race. At stake is the Horizon project, which includes plans to build 6GW of capacity at two nuclear power stations at Wylfa on Anglesey (Wales) and Oldbury (Gloucestershire). Horizon owns the two nuclear sites but the German partners in the joint venture, E.ON and RWE, pulled out in March 2012.

The consortium that has opted out is French-Chinese, led by French Areva and the China Guangdong Nuclear Power Group (CGNPC). The consortium had signaled its interest in making a bid in July 2012. No official commentary has been issued by Areva to explain the withdrawal but press reports indicated that it was due to a lack of backing from CGNPC. However, Areva and CGNPC know each other well and have worked closely together in the past, with Areva having built new generation European Pressurized Reactors for CGNPC in Taishan, southwest China.

The two remaining consortia include one led by the US firm Westinghouse (owned by Toshiba), and a Japanese consortium led by Hitachi in partnership with the Canadian company SNC-Lavalin.

Other bidders were rumored to have been interested in Horizon, including the Russian nuclear conglomerate Rosatom; however, the withdrawal of Areva is a big blow to the UK government as the bid was perceived to be serious. Of note is the absence now of Chinese investors in the Horizon bid: CGNPC was part of the Areva consortium and China's State Nuclear Baoti Zirconium was part of the Westinghouse/Toshiba bid.

Thus Areva's withdrawal from the Horizon bid is more significant than it initially appeared. It is a signal that foreign investors, in this case major Chinese investors, perceive the risk/return ratio in nuclear generation in the UK to be unfavorable enough to cause them to "wait and see."

The government has estimated that GBP110bn of investment is required for electricity generation, but the Horizon bid begs the question that if the Chinese are not interested, who will be able to make such large commitments in a relatively capital-constrained market? Fortunately for the UK, Japan, like Germany, has eschewed nuclear generation, meaning that firms like Hitachi and Toshiba need new export markets for their nuclear technology.

The Areva withdrawal is a signal to the government that the instruments in its electricity market reform are insufficient to inspire investor confidence in low-carbon generation. In particular, the price that will be received by generators in low-carbon generation under the feed-in tariffs with Contracts for Differences is clearly a crucial element and one that will need to be transparent when the Energy Bill is introduced into the UK parliament in the autumn.

The decision on the Horizon bid is expected in early November. If all goes to plan, the two sites could be operational by 2022-23.

Source: MarketLine

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