Hitachi has shelved its new nuclear power station project at Wylfa in Wales in a move that triggers questions on the future of UK energy policy.
The company formally resolved to halt the £20bn project at a board meeting in Tokyo on Thursday. It will write off ¥300bn ($2.8bn) of work in progress.
The Japanese company’s decision to abandon the project means the UK’s programme of new nuclear construction is hanging by a thread after Toshiba quit a similar project at Moorside in Cumbria last year.
Losing the Japanese companies means the UK will have to decide whether to turn to China for nuclear technology, burn more fossil fuels or attempt an even faster expansion of renewable energy to keep the lights on in the 2020s and 2030s.
“Despite the best efforts of everyone involved the parties have not been able to reach an agreement,” said the company. “As a result, Hitachi has decided to suspend the project at this time from the viewpoint of its economic rationality as a private enterprise.”
Toshiaki Higashihara, the Hitachi chief executive, said: “A freeze means we will not put in any additional investment.” He added that the company would only renew its involvement if the project was kept off Hitachi’s balance sheet, required only a limited capital investment from the company and offered the prospect of an adequate profit.
To meet these criteria is likely to require a significant change in the UK government’s approach to financing nuclear power.
People involved in the Wylfa project said a lack of firm financing commitments made it impossible for Hitachi to keep pumping in its own cash. Hitachi’s $6.4bn acquisition of the power grids division of ABB in December has also stretched its balance sheet.
Hitachi also announced it was abandoning its other planned UK nuclear plant, at Oldbury-on-Severn in Gloucestershire.
The Department for Business, Energy and Industrial Strategy said the government was still “committed to the nuclear sector”. “We are also reviewing alternative funding models for future nuclear projects and will update on these findings in summer 2019,” an official said.
Greg Clark, the business secretary, told the Commons that with the rapidly falling cost of alternative renewable energy sources, the nuclear industry was struggling around the world and that it would have been unfair on taxpayers to have offered more generous terms to Hitachi.
“I was not prepared to ask taxpayers to take on a larger share of the equity, which would have meant taxpayers taking on the majority of construction risk,” he said of the Wylfa project.
Mr Clark confirmed that the government was now considering a new way of funding nuclear power stations, called regulatory asset base, and would issue a report before the summer.
The UK aimed to attract private finance to build new nuclear power stations by guaranteeing high sale prices for their electricity. But investors have proved reluctant to take on the construction risk of reactors built with enormously complex and costly safety systems.
EDF’s plant at Hinkley Point in Somerset, the only new UK reactor already under construction, will receive £92.50 per megawatt-hour for its electricity. The price on the table at Wylfa was about £75 per MWh with a price below £60 for later reactors on the site.
Matthew Fell, chief policy officer at the CBI business group, said Hitachi’s decision “leaves in doubt the UK’s ability to replace its existing nuclear fleet”.
“The government needs to build on its support for new nuclear power by giving individual projects the certainty they need, alongside measures that deliver a mix of low carbon and renewable technologies,” he said.
Hitachi slashed its net income forecast for the year to March 2019 from ¥530bn to ¥230bn, reflecting the scale of the loss.
“Today’s news is disappointing, not just for the Wylfa Newydd project but for Anglesey and the nuclear industry as a whole,” said Tom Greatrex, chief executive of the Nuclear Industry Association in the UK. “Wylfa remains a strong site for vital new nuclear power for the UK.”
Rebecca Long-Bailey MP, the shadow business secretary, said the government’s nuclear strategy was “lying in tatters”.
“Just two months ago, the government’s lack of clarity over funding for new nuclear led Toshiba to withdraw from Moorside. That was a blow to the UK’s energy security, its decarbonisation goals, and the economy of Cumbria,” she said. “But with Hitachi’s decision to withdraw from the Wylfa nuclear power plant, this triple blow has escalated into a full-blown crisis.”
Ms Long-Bailey said the suspension of the two Japanese projects left a “6.3 gigawatt hole of low carbon energy — 13 per cent of the UK’s electricity”.
Hitachi’s share price is up around 10 per cent since the first reports it would halt the Welsh project. “Hitachi’s announcement that it has suspended its nuclear power business in the UK is credit positive because the project would have posed a large financial burden for the manufacturing company over a protracted period,” said Akifumi Fukushi, senior analyst at Moody’s in Tokyo.
“Hitachi does not rule out the possibility of taking on the project in future, if conditions are favourable for the company,” said Mr Fukushi. “But if it proceeds with the project, it will face the execution risks associated with the complex construction of a nuclear plant.”
This article has been amended to correct a mistaken attribution of a quote to Hiroaki Nakanishi, the Hitachi chairman