Hitachi buys UK nuclear project from E.On and RWE

Wylfa nuclear power station on Anglesey The existing Wylfa plant is due to stop producing electricity by 2014

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The UK's nuclear expansion plans have been boosted after Japan's Hitachi signed a £700m deal giving it rights to build a new generation of power plants.

Hitachi is to buy Horizon Nuclear Power, which was intending to build reactors on existing sites at Wylfa, Anglesey, and Oldbury, near Bristol.

Hitachi is buying Horizon from Germany's E.On and RWE, which are withdrawing from the UK nuclear market.

Prime Minister David Cameron said it was a major step for the UK.

"This is a decades-long, multi-billion pound vote of confidence in the UK, that will contribute vital new infrastructure to power our economy.

"It will support up to 12,000 jobs during construction and thousands more permanent highly skilled roles once the new power plants are operational, as well as stimulating exciting new industrial investments in the UK's nuclear supply chain. I warmly welcome Hitachi as a major new player in the UK energy sector," he said.

Analysis

Hitachi's acquisition of Horizon Nuclear Power marks the start of a journey.

The Japanese company says it wants to invest billions of pounds and create thousands of jobs in the UK, as it helps combat predicted energy shortages in the years ahead.

But no firm investment commitment will be forthcoming until the government comes up with a minimum price for nuclear power.

And if that price turns out to be too low, there is no guarantee that Hitachi will go ahead with its plans.

UK engineering companies Babcock International and Rolls-Royce have signed preliminary contracts to join the Hitachi deal, which the Japanese company said should be completed by the end of November.

There will then be regulatory issues to clear, but once Hitachi's reactor design is approved by the necessary authorities the company intends to build 6 gigawatts of nuclear capacity, with the first plant generating power in the first half of the next decade.

Up to 6,000 jobs are expected to be created during construction at each site, thousands more in the supply chain, and a further 1,000 permanent jobs at both locations once operational.

Dependency

The Horizon venture, based at Brockworth, Gloucester, currently employs about 90 people and was set up in 2009 as part of the drive to meet the UK's carbon reduction goals and secure energy demand as old power plants are decommissioned.

But RWE and E.On put the business up for sale in March after Germany's move to abandon nuclear power in the wake of Japan's Fukushima disaster.

A consortium made up of EDF and British Gas-owner Centrica has maintained its interest but the two companies have still to decide whether to build two reactors at Hinckley Point, Somerset.

Map showing nuclear reactor sites across the UK

Companies involved in the nuclear industry have expressed caution over entering the UK market. Because of the huge capital costs, stretched over many years, companies want some certainty over how much they might be paid for the electricity generated by their plants.

Last week, the chief executive of EDF, Vincent de Rivaz, told MPs that his company needed safeguards from the government that the finances of future nuclear deals would be "fair".

Delays over decision-making and financing have led to doubts that new power capacity will come on stream before existing plants go offline. A so-called "energy gap" is likely to lead to rising prices and a greater dependency on gas imports.

Earlier this month, the energy regulator Ofgem warned that the UK risks running out of energy generating capacity in the winter of 2015-16. Its report predicted that the amount of spare capacity could fall from 14% now to only 4% in three years.

However, the government said that its forthcoming Energy Bill would ensure that there was secure supply.

With so many uncertainties still to be resolved, investment in the UK nuclear sector was still a "leap of faith", said George Borovas, head of nuclear projects at global law firm Pillsbury. So, he said, Hitachi's decision was a "significant... vote of confidence in the UK nuclear programme".

'Milestone'

Hitachi's proposed facilities will use its advanced boiling water technology, which is already used in four reactors in Japan. Mr Borovas said this technology was a "proven success", adding: "This should be very helpful with respect to its licensing in the UK and also opens up the possibility of significant export credit agency and commercial financing from Japan."

Energy and Climate Change Secretary Ed Davey said: "Hitachi bring with them decades of expertise, and are responsible for building some of the most advanced nuclear reactors on time and on budget, so I welcome their commitment to helping build a low-carbon, secure-energy future for the UK."

Shadow energy secretary Caroline Flint called on the government to use this as an opportunity to encourage investment in nuclear research and design.

Unions also welcomed Hitachi's move, with Mike Clancy, general secretary designate of Prospect, saying: "The Horizon venture is an important milestone in securing future low-carbon energy generation capacity within the UK and its importance to local and national economies cannot be overstated.

"While Hitachi's advanced boiling water reactor design has yet to undergo the UK's generic design assessment approval process, it is a proven technology and therefore any construction in the UK will benefit from lessons learned from its construction in Japan."

Diagram showing how a  nuclear Boiling Water Reactor works

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