Japan’s Plans for Nuclear Exports Hit Speed Bumps

  • Hitachi seeks to reduce equity stake in UK nuclear project by 50%
  • Soaring costs for Turkey’s Sinop project cause a key investor to pull out
  • Japan’s best chances for new nuclear reactor projects may be at home

(Two updates, below, on Hitachi’s plans for Wylfa)

Nikkei, a Japanese business wire service, reports that Hitachi CEO Toshiaki Higashihara is asking the UK government to take a 50% direct stake in the Horizon nuclear power project. The project located at Wylfa in Wales is expected to be composed of two 1350 MW Hitachi ABWRs. Currently, it is 100% owned by Hitachi. What the firm’s CEO would like to see is a consortium of UK firms and the government take half of the risk of financing the project.

nuclear power in the UK

U.K. Government Map of Commercial Nuclear Power Stations

Higashihara is expected to meet with UK Prime Minister Theresa May this week. His key talking point is that the expected cost of $27.5 billion is too much for his company to carry by itself even with Japanese export banking credits. So far Whitehall officials haven’t said no to Hitachi’s request despite a predisposition by the government not to take a direct stake in new nuclear reactor project. The U.K. has a massive new nuclear build underway as shown on the map here.

Hitachi will also ask the UK government to provide loan guarantees for the 50% share its does take in the project to lower the interest rate and thus the financial costs of the loans.

Another key issue, as Hitachi sees it, is for the UK government to guarantee the rates the plants will charge for electricity which also is seen as a confidence builder for investors.

Hitachi has already spent near $3 billion on development of the project including the licensing of the ABWR design in the UK which was successfully completed in December 2017.

If Horizon is successful with Wylfa, it hopes to build a second 2.7 GWe nuclear power station at Oldbury in Gloucestershire. The plants will also use Hitachi’s advanced boiling water reactor (ABWR).

Update May 8, 2018: Negotiations Continue over Horizon Loans

Reuters reports from Tokyo that Hitachi Ltd’s Horizon Nuclear Power unit has received an assurance from the British government that it will guarantee loans for the construction of two reactors in Wales.

According to Japanese news media reports British Prime Minister Theresa May met Hitachi Chairman Hiroaki Nakanishi in London and asked him to go ahead the project, conveying the government’s intention to fully guarantee the loans.

That report was subsequently disputed. by a later Reuters report from London which conflicted with the early one. A U.K. government spokesman threw cold water on the news that the loan guarantees were a done deal.

“We don’t recognise these reports,” a spokesman for Britain’s Department for Business, Energy and Industrial Strategy (BEIS) said in an emailed statement to Reuters.

“Nuclear power remains a crucial part of the UK’s energy future but we have always been clear that this must be delivered at the right price for consumers and taxpayers,” he said.

“These discussions are commercially sensitive and we have no further details at this time,” the BEIS spokesman said.

Hitachi is still pushing for the British government to take an equity stake in the project and to guarantee electricity prices to ensure it is profitable. Rate guarantees will also bring investors to the project. Hitachi wants a combination of government and private equity investors to take a 50% stake in the project.

For Hitachi, Horizon would help Japan’s ambitions to export its nuclear technology after the Fukushima nuclear disaster made the construction of new reactors difficult at home.

Update May 11, 2018: London offers $18bn in loans for Hitachi’s UK nuclear plant

(Nikkei) The British government is now offering $18.2 billion in lending that Hitachi says is needed to build a nuclear power plant in Wales. T

The plan also calls for Hitachi as well as Japanese and British public-private interests each taking a one-third stake, and for the government to provide guarantees for corporate loans.

The total cost of the plant, to be built on the Isle of Anglesey, which will install two 1350 ABWRs at 6,500/kW, would cost $17.6 billion. The proposed loan would cover almost all of these costs.  However, Hitachi has made extraordinary claims of much higher costs for the plant much of related to the cost of investment capital, plus what it says are new safety requirements.

Hitachi Chairman Hiroaki Nakanishi met with Prime Minister Theresa May in London last week to ask for better financial backing. The original plan called for the loans to be provided by private lending institutions from both countries and guaranteed equally by each government.

State funding would substantially lower the cost of borrowing from private institutions and would demonstrate the U.K.’s increased involvement as a backer of Hitachi’s nuclear power business, which would ease raising funds and help secure investors.

The British Parliament may oppose expanding the government’s stake, which could throw a wrench in the project’s final shareholding structure or allocation of costs.

Hitachi is also requesting that the electricity’s purchase price be raised and guaranteed, but the U.K. government is opposed. It hopes to satisfy Hitachi by covering all loans and raising its stake in the project.

The project is is scheduled to break ground next year.

SINOP Investor Drops Out Over Costs

A major Japanese investor in Turkey’s planned second nuclear power station at Sinop on the Black Sea coast has dropped out of participating in the project due to dramatic increases in the cost of the project.  The Nikkei news service reports that Itochu Trading House says the original cost of $18 billion for four 1100 MW PWR type reactors has skyrocketed due to what it says are new safety and security measures for the plants. The firm also reportedly complained that the timeframe to complete the project, 2023, wasn’t feasible.

IAEA Nuclear Power in Turkey

IAEA Map of Commercial Nuclear Power Projects in Turkey

The decision is seen by some as premature as a feasibility study being conducted by Mitsubishi Heavy Industries (MHL) has been extended from March and is now expected to be complete sometime later this year.

Even with Itochu’s departure, MHL told the Asahi Shimbun newspaper it plans to go ahead with the effort assuming it can get rate guarantees that will bring investors to the table and provide them with a reasonable rate of return on their equity stakes in the project.

Itochu was planned to be part of a consortium of investors that would put up 30% of the costs. Other investors are expected include the Japan Bank for International Cooperation, MHL, the French utility Engie and the Turkish Electric Generation Corporation.

The project envisions four 1100 MW ATMEA PWR type reactors the design for which was jointly developed by MHL and Areva. It is a scaled down version of Areva’s 1650 MW EPR. None have ever been built making the Sinop project a first of a kind project (FOAK) for the design.

For its part the Turkish Energy Ministry expressed disappointment that Itochu had pulled out. It did not comments on prospects for future investors since the MHL feasibility report is not yet complete.

Even so Turkey has broken ground on a joint project with Rosatom to build four 1200 MW VVERs, the most powerful PWR type reactors available to the firm’s export customers at the Akkuyu site on Turkey;s southern Mediterranean coast.

In addition, a recent Turkish trade mission to Beijing revived talks about a third nuclear power station at Igneada in the Kirklareliu province on the western shores of the Black Sea.  Export of electricity to Bulgaria is one of the commercial factors in building the power station.

China is expected to offer the CAP1400 for the project.  World Nuclear News reports that site preparation is already underway for two demonstration CAP1400 units at Huaneng Group’s Shidaowan site in Shandong province.

Japan’s Fading Prospects
for New Nuclear Export Deals

Japan’s PM Abe has made a strong push for the project as part of an effort to revive the country’s exports of nuclear reactors following the collapse of Toshiba’s role in this business due to the bankruptcy of its Westinghouse business unit. However, Abe’s term is up in September and his successor may be more sympathetic to post-Fukushima fears among voters.

nuclear power in Japan WNA

Commercial Nuclear Power Plans in Japan. Map courtesy of World Nuclear Association

The biggest black eye that Japan has gotten in recent years isn’t from cleanup troubles at Fukushima, but from the multi-billion dollar cost overruns at the V C Summer site where Toshiba’s Westinghouse ran the project into the ground with self-inflicted management failures.

Toshiba sold the Westinghouse business unit in February unloading it for $1 billion less than it paid to purchase the firm ten years ago.

Japan has also been pushed out of an opportunity to provide four full size nuclear reactors to Vietnam. In fairness, that country also cancelled similar plans to acquire four Russian nuclear reactors.

The country cancelled all of its plans for nuclear power stations in November 2016. The main reasons were fears about costs and the inability of the government to stand up a nuclear safety agency, a regulatory framework, and capability to oversee a construction project involving eight 1000 MW nuclear reactors.

Japan needs a “win” to get back in the game, and the Sinop project in Turkey is its best chance to get one. Putting together a workable cost and schedule package that can be sold to investors is a big challenge. The country’s future in exporting nuclear energy technologies depends on it.

Japan Plans Role for Nuclear Energy
in Meeting Greenhouse Gas Reduction Targets

(Reuters / Japan News Media) A Japanese government energy planning panel said in April that the country should be building new nuclear plants to help meet long-term emissions targets. It said that the country should rapid develop new reactor designs that are safer and cheaper to operate. The panel also called for accelerating development in hydrogen, produced by nuclear reactors, and in energy storage technology.

At the same time the panel said that Japan should reduce its dependence on nuclear power, shift from coal to gas and boost renewable energy. In the past Japan’s heavy dependence on nuclear energy was driven by global competition, primarily with China, for oil and other fossil fuels.

Japan’s once high profile plan for a “plutonium economy,” based on reprocessing of spent nuclear fuel into MOX, or for use in fast reactors, has not been successful.  In December 2016 the government called it quits with its Monju fast breeder reactor project. The project has been plagued by accidents, management transparency issues, and huge cost overruns.  It never achieved its expected levels of performance.

Yet, the panel, in pushing for new, advanced reactors, went further than the current policy of the Ministry of Economy, Trade and Industry (METI).

Shogo Tanaka, director of the ministry’s energy strategy office told Reuters, “The report does not specifically talk about possible building of new reactors or replacing existing reactors, but it does not deny such a possibility either.”

The energy panel is made up of industry and academic representatives and includes Hitachi Ltd Chairman Hiroaki Nakanishi

In Japan nuclear energy continues to face challenges of strong public opposition. Only five of the country’s 39 commercially viable reactors currently operating. The country’s largest nuclear power station, Kashiwazaki-Kariwa, remains closed due to the opposition of provincial government officials who have virtual veto power over restarts even after the plants have passed review by the Nuclear Regulatory Agency.

Kashiwazaki-Kariwais the world’s largest rated nuclear power station. With seven reactors generating 8,212MW, the station, owned and operated by the Tokyo Electric Power Company (TEPCO), it can provide electricity to 16 million households.

Reuters notes that the continued closure of the 35 other nuclear reactors have boosted Japan’s reliance on coal and natural gas. In terms of greenhouse gases it is currently the world’s fifth-biggest carbon emitter.

The country has pledged to trim its emissions from 2013 levels by 26% by 2030 and by 80% by 2050. It is currently aiming for a electricity mix by 2030 of 22-24% renewables, 20-22% nuclear and 56% fossil fuels including 27% gas and 26% coal.

In January 2018 Reuters reported that Japan’s coal imports rose to a record last year and liquefied natural gas (LNG) purchases climbed for the first time in three years.

Japan coal imports

Coal Imports in Japan. Data/Chart via METI

Coal imports rose 4.3 percent from a year earlier to 114.5 million tonnes in 2017, surpassing the 113.8 million tonnes imported in 2015.  The costs of the imports rose by a painful 45% over 2016.

In 2017 fossil fuels account for 83% percent of Japan’s electricity, renewables 15% and nuclear just 2% based on slow restarts.

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