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UK’s energy future in chaos after Horizon fails

German energy giants Eon and RWE ditch plans for new nuclear build joint venture.

The UK’s future nuclear energy policy was thrown into doubt this week following the decision by German energy giants RWE and Eon to abandon their Horizon new nuclear build joint venture.

Their decision last week to put Horizon up for sale and abandon UK new nuclear development currently leaves a major gap in the government’s energy plans.

The Department of Energy and Climate Change (Decc) has set a target of creating 16GW of new nuclear capacity by 2025 and has declared eight sites suitable for development to meet this target. Decc has pledged to increase the electricity supply from nuclear energy from 18% today to up to 40% by 2030.

Horizon had planned to develop power stations at two of the eight sites identified by Decc - Wylfa in North Wales and Oldbury in the South West.

But RWE and Eon have now withdrawn, blaming high capital costs thanks to difficult economic conditions, long lead times for payback and the unexpected cost of having to decommission its nuclear power stations in Germany following the country’s decision last year to abandon the technology in the wake of Japan’s Fukushima disaster.

“The cost of decommissioning in Germany means our finances are more constrained,” said an RWE spokesman.
Engineers and senior leaders blamed failings at government level for leaving the UK’s future electricity supply so dependent on private sector variables.

Lack of strategic thinking

Energy consultant Integrated Decision Management (IDM) director Gregg Butler said the decision by Eon and RWE “underlined the lack of strategic thinking” behind the government’s energy programme because there appears to be no back-up plan for this or any other private sector developer pulling out.

“The government marks out its pitch in terms of energy policy and hopes that someone plays on it,” said Butler.

“But there’s no strategic thinking if no-one plays.”

Others added that issues surrounding finance and funding for new nuclear has failed to be addressed by energy market reforms (EMR) currently being devised by Decc.

Investment bank Citi Investment Research managing director Peter Atherton said the main problem was high up-front costs of building new nuclear, which is not sufficiently countered by the EMR.

He said the EMR only covers power stations’ revenue risk by guaranteeing a minimum amount the utility will receive for producing power. The risks of construction costs overrunning are not covered and, as a result, utilities will be deterred to invest in nuclear.

“[UK’s energy] targets are too ambitious because utilities do not have the money to fund the investment required in nuclear,” he added.

Strong message

“Horizon’s decision sends out a strong message - that there’s not a cat in hell’s chance that utilities alone can fund this investment in nuclear.”

Energy minister Charles Hendry attempted to play down concerns over the impact of last week’s announcement.

“The UK’s new nuclear programme is far more than one consortium, and there remains considerable interest,” he said in a statement. “Plans from EdF/Centrica and Nugen are on track and Horizon’s sites offer new players an excellent ready-made opportunity to enter the market.”

However, business leaders remain sceptical that a buyer could be found in the short term.

“There’s not one European utility that has the balance sheet to make this sort of investment,” said law firm Bird and Bird energy partner Andrew Renton.

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