- It involves the original choice for three Westinghouse AP1000 nuclear reactors
- It requires the South Korean nuclear giant KEPCO to be the engineering procurement construction leader (EPC) but not the investor nor the reactor vendor
- It requires UK government to do three tremendous things (1) guarantee the electricity rates for the 60 year life of the plants (2) issues bonds backed by the rates to pay for the project, and (3) follow through with BREXIT to spike any possibility of interference Austria or anyone else in the EU with the rate case.
- It requires NuGen to get a new utility operator to replace Engie which bailed out of its 40% stake this week
Jonathan Swift’s original “Modest Proposal” was written to address the issue that there were too many children in Ireland and the UK that could not be fed and thus were starving. He considered the option of selling the children into slavery, but pointed out that no one would buy them since all were under the age of 12.
Written in 1729, the title of Swift’s essay offering logical suggestions for dealing in intractable problems involving the welfare of the entire society has become an idiomatic phase for ideas that attempt to do the same in the modern era. That’s what is presented here.
In the UK the nuclear project at Moorside in Cumbria has of late become starved for funds and has few, if any, immediate prospects for buyers due to its still being on the drawing board with no construction underway.
NuGen’s Moorside nuclear project to be located on a site near Sellafield, in Cumbria, is in real trouble and so is the UK. The nation needs the project, and its 3,300 MW of CO2 emission free power because the North Sea oil and gas fields have finite shelf lives and the first generation of UK nuclear power plants are reaching the end of their service lives.
There have been fast moving events this week as Toshiba, the parent company of Westinghouse, its American business unit, fired the management team there and also filed for Chapter 11 bankruptcy in New York. Toshiba was also required to take over the 40% equity stake in the NuGen project held by Engie, formerly GDF Suez, which per contract demanded to be released from its commitments.
As predicted by this blog, a private equity firm became the first investor in the strategy by Westinghouse to emerge from Chapter 11, but not for the reactor business.
The Apollo Investment Corp. of New York came up with an $800 million debtor-in-possession financing package$800 million debtor-in-possession financing package which was approved by the bankruptcy judge.
It is a big bet for the firm which according to its website has $2.5 billion invested in a diversified portfolio. The new loan is equal to one-third of all other investments made by the firm.
What Apollo sees, and provides confidence in the size of its position, is that parts of Westinghouse are making money now and will continue to do so. According to the court filing “the majority of the debtors’ businesses — particularly those relating to nuclear fuel and the servicing of nuclear plants—are very profitable.”
The next step is for Westinghouse to focus on the “profitable core businesses and isolate them from the one specific area of their businesses that is losing money: their construction of nuclear power plants in Georgia and South Carolina.”
This means the investors behind the $800 million raised by the equity firm can see daylight, but not for the nuclear reactor construction side of the business.
In short the investors putting up the $800M are not throwing a life preserver to NuGen. It’s also bad news for the US reactor projects in Georgia and South Carolina.
A Strategy for NuGen to Move Ahead at Moorside
The first thing NuGen needs is a new investment plan. The project needs money and a lots of it it. At an estimated “overnight cost” $5,000/Kw, the 3,450 MW of power could cost approximately $17 billion. That doesn’t include all the extras like substantially beefing up the regional grid to deliver power to customers.
Frankly, the South Koreans, as interested as they are in the project, are not going to do two things. First, they are not going to be investors. Second, they don’t have a reactor design that has cleared the UK’s Generic Design Approval (GDA) process which means any EPC contractor hired for the job has to build AP1000s which do have GDA signoff.
The only set of deep pockets left in the UK is the government itself. If the government can be convinced to guarantee the rates for the plant, then that guarantee can be the basis for government issued bonds for the project. Backed by the full faith and credit of the UK government, the bonds will get a good rating for acquisition by institutional investors.
Finally, because the government would be setting a rate case to support the bonds, it needs to be sure that there will not be efforts to meddle in this arrangement by anti-nuclear states in the European Union like Austria. That country has already tried to torpedo the Hinkley Point project, composed of three Areva 1650 MW EPRs, and may take another bite at the apple with Moorside.
The circuit breaker in this scenario is BREXIT. Brexit is a commonly used term for the United Kingdom’s intention to withdraw from the European Union (EU) fol;owing the 2016 referendum vote to leave. The UK government started the withdrawal process on March 28,2017, putting the country on course to leave the EU by April 2019.
The original date for the investment decision in NuGen’s Moorside project was December 2018. Waiting another four months to see BREXIT complete would allow the rate case and the bonds to float free of interference from the EU.
This is necessarily a conceptual scenario and there are lots of details, and reasons, that might make it impossible to carry out. That said, this is the kind of swing for the fences thinking that NuGen is going to need to bring the project home.
UK Business Secretary in South Korea Over NuGen
(NucNet)(WNN): UK business secretary Greg Clark visited Seoul this week in a bid to salvage plans to build three Westinghouse Generation III+ AP1000 nuclear reactor units at Moorside in Cumbria, northwest England.
Media reports said Clark met senior South Korean government officials and nuclear industry executives to discuss potential investment in Moorside by Korea Electric Power Corporation (Kepco), the state-controlled utility.
“KEPCO has a very strong reputation internationally in nuclear sector. So it’s not a surprise to me that the company is considered by the NuGen consortium,” the British secretary said
He added “If KEPCO agrees to become part of the consortium, the company will have the full right in terms of the relationship with the U.K. Government and the U.K. authorities as other members of the consortium do.”
KEPCO, however, has not yet made any specific decision on whether or not it will join the consortium.
Korea’s KEPCO Cautious About Moorside Role
(Reuters) As Britain hunts for a new partner for a stalled nuclear power project, South Korea’s KEPCO remains the most likely partner, but the giant utility says it won’t be rushed into making a deal.
“Both Britain and Toshiba, they seem to be in a greater hurry than we thought and pushing KEPCO. In fact, it requires considerable time to review a project, so it is not a matter that can be done hastily,” an expert anonymous source in South Korea told the wire service.
At a briefing in Seoul, Britain’s Clark offered no indication of concrete progress in his negotiations with KEPCO. The minister said added the choice of a partner is for NuGen to decide, not the British government.
One key issue for KEPCO will be the technology used for the Moorside project – Toshiba’s AP1000 reactor, as planned, or its own APR1400. While Toshiba previously received the green light from Britain for the Westinghouse design, KEPCO might want to make approval for its own technology that a condition.
Alternatively, it might want the contracts to make the more expensive long lead items like steam generators, turbines, pumps, and other system components.
“KEPCO is working and studying hard which type of nuclear reactors would suit better for them, given the current market situation,” the second expert with knowledge of the matter told the wire service. Using KEPCO’s own reactors could “give a better reason to join the project”, the person said.
In point of fact, this rhetoric might be bargaining chip language to get better terms on any deal. The equation might be – give up trying to push your own reactor technology and we’ll (the UK / NuGen) give you other parts of the project that will make it worthwhile for you to be the EPC lead.
A realistic view is that pushing KEPCO’s reactor would add two to three years of delay to the project as KEPCO’s reactor design has not been submitted for GDA review. The fastest path open to the firm is to be the EPC for the project and have Westinghouse be a vendor of the reactors.
Toshiba Holding the Bag as NuGen Partner Backs Out of Moorside
(Telegraph UK) The future of the Moorside nuclear plant in Cumbria has been thrown into fresh doubt after one of its backers quit the project, leaving struggling Japanese conglomerate Toshiba as the last developer standing.
Engie, formerly known as GDF Suez, will sell its 40% stake in the project to majority partner Toshiba for $138.5m (£111.3m), saying the plan to build three nuclear reactors at the Cumbrian site faces “significant challenges” after a US subsidiary of the Japanese firm filed for bankruptcy.
Having stated its intention to exit nuclear projects outside Japan, Toshiba is now in the position of holding sole responsibility for developing Moorside. It said it would continue to hunt for backers interested in Moorside in order to sell off its holding in the project.
AP1000 Completes GDA
The Westinghouse AP1000 cleared the GDA process on March 30, 2017. The award of the Design Acceptance Confirmation (DAC), and Statement of Design Acceptability (SoDA), by the Office for Nuclear Regulation and the Environment Agency respectively moves NuGen’s Moorside Project forward.
The award of DAC and SoDA marks the end of a decade-long process involving Westinghouse, the designer of the AP1000, after completing an exhaustive dialogue with the nuclear regulators to ensure the reactor design is suitable for construction in the UK. It confirms that the reactors used in West Cumbria will meet the regulators’ expectations on safety, security and environmental protection.
The conclusion of GDA means that NuGen, through its own in-house Design Authority, now takes ownership of and responsibility for the design in relation to the AP1000 reactors at Moorside.
The AP1000 reactor design becomes only the second of the new generation of reactors to be confirmed by the regulators to be acceptable for deployment in the UK. The first was the Areva EPR where first concrete has been poured at the Hinkley Point project to build two of them.
Horizon Submits Site Application For Wylfa Newydd Nuclear Station
(NucNet): Horizon Nuclear Power has submitted its site application to build and operate two UK Advanced-Boiling Water Reactor (ABWR) units at the Wylfa Newydd nuclear power station on the island of Anglesey in north Wales, the company said on April 4, 2017.
Receipt of the application by the Office for Nuclear Regulation (ONR) now triggers a rigorous 19-month program of assessment to establish whether Horizon can demonstrate it will be in control of all safety related activities on its site.
Hitachi-GE’s UK ABWR reactor technology is progressing through the fourth and final stage of its generic design assessment, or GDA, and is on track to be approved for use in the UK by the end of December 2017. If that approval is granted, Horizon aims to receive all the necessary permissions by the end of 2018.
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KEPCO is willing to put together a financing package for the NuGen site, but they are not going to build AP1000 reactors there simply because the risk is very high. If WestingHouse couldn’t make it work, then there is no way KEPCO could make it work. If KEPCO decides to built, then it has to be its own APR1400, the only Gen III reactor design that is in commercial service, and has been built on time and on budget in two separate countries without trouble.
The problem for KEPCO, as I pointed out in the article, is that their reactor design has not passed the UK GDA and entering it now would add three years to the project’s schedule. The AP1000 is approved and has completed the GDA. If KEPCO wants in on the UK market, it needs to figure out why the four AP1000s in China are nearing completion and why the four in the US are behind the eight ball.
Then NuGen site will have to wait until the APR1400 clears UK certification. No money wasted while the project awaits approval. The AP1000 is absolutely not an option for KEPCO.
Most of the primary circuit components of the AP1000s currently under construction are made in South Korea anyway, so that is the reason why NUGEN went there. They should have talked to Doosan Heavy instead of KHNP.