[News analysis] Nuclear power plant project in UK stirs controversy in South Korea

Posted on : 2018-08-06 17:33 KST Modified on : 2019-10-19 20:29 KST
Profitability and sustainability of overseas nuclear power plants called into question

A new nuclear power plant effort currently being pursued in the United Kingdom is becoming the focus of debate in South Korea. The controversy began with news on July 31 that the Japanese company Toshiba cancelled the Korea Electric Power Company’s (KEPCO) priority negotiation partner status in its bid to sell off NuGen, the company responsible for developing the proposed Moorside nuclear power station in northwest England.

Toshiba’s decision has been viewed by most as a strategic move to draw a faster decision from the South Korean side as it scrambles to resolve its management woes by selling off its NuGen stake. But the issue has created controversy as the South Korean nuclear power industry and some media have portrayed it as a case of the Moon Jae-in administration’s “post-nuclear power policy” robbing KEPCO of a hard-won overseas nuclear power plant project opportunity.

Overshadowed in the debate are concerns about losing an opportunity to closely examine the profitability and risks of overseas nuclear power projects. Japanese and French nuclear power companies that have become involved in the UK’s six new nuclear power construction projects have either already declared their retreat or become bogged down in years of negotiations over the methods and levels of profit guarantees. Based on the various developments observed to date in the UK’s pursuit of its new nuclear power project, South Korean [critics] appear to be overlooking a global trend toward viewing nuclear power as a likely money loser of a venture rather than a profitable one.

6 new nuclear power plants projects in the UK
6 new nuclear power plants projects in the UK

Project would cost us 22 trillion won (US$19.59 billion)

In Oct. 2010, the British government announced plans to build several nuclear power stations. At the time, it formed plans to build eight new reactors to replace outdated ones, while taking steps to reduce the use of coal power to cut down on carbon emissions. The Fukushima nuclear power plant disaster in Mar. 2011 triggered calls in the UK to scrap the new nuclear power station plan, but the British government went ahead with it. The nuclear power industry, which was facing “holdover” treatment around the world amid the emergence of issues with nuclear power safety, began focusing its attention on the UK.

But the UK proved to be a difficult customer. Stressing the importance of “balanced finances,” its government stated as a rule that no public funds would be spent on building nuclear power stations. Instead, it insisted on a “contract for difference” (CfD) approach from the companies seeking to be part of its nuclear power effort: they would be responsible for procuring the funds to build the stations, which they could reclaim by selling power over a 35-year period. It was a very different approach from the United Arab Emirates nuclear power plant project, which followed an “engineering, procurement and construction” (EPC) arrangement in which the company was paid to build the plants. The Moorside project was described as a “project worth 22 trillion won [US$19.6 billion]” – but the 22 trillion won is an amount invested, not an amount received.

Toshiba washes hands of project after subsidiary goes under

If the British nuclear power project is as good as opportunity as the South Korean industry has claimed, why is Toshiba trying to wash its hands of it? Back in 2014 when Moorside project company NuGen announced plans to build three roughly one-gigawatt reactors in the UK, its equity structure had Toshiba owning a 60 percent stake in the company, while the French energy company Engie owned the other 40 percent. Three years later in Apr. 2017, Engie pulled out, selling its 40 percent share of NuGen to Toshiba for US$138 million.

Engie’s withdrawal appeared connected to the bankruptcy filing of Westinghouse, a US-based Toshiba subsidiary. Previously a world leader, Westinghouse faced mounting costs and snowballing losses amid sterner global regulations on nuclear power safety after the Fukushima disaster. It suffered losses of 7 trillion won (700 billion yen/US$6.2 billion) on nuclear power plant construction projects in the US states of Georgia and South Carolina. As Westinghouse finally went under, it came close to compounding the management woes for parent company Toshiba. Unable to bank on the Moorside project’s success, Engie quickly pulled out.

As Toshiba took on NuGen in its entirety and the British government hustled to save the Moorside project, an SOS message was sent out to South Korea. On Mar. 27, 2017, the Nikkei reported a possibility that Toshiba would request KEPCO’s cooperation if Westinghouse filed for bankruptcy. Not long afterwards, Toshiba did announce its intent to sell off NuGen. The following Apr. 5, UK Secretary of State for Business, Energy and Industrial Strategy Greg Clark shared a warm message at a press conference during a visit to South Korea, saying the UK had watched KEPCO’s successful project execution in the UAE with interest.

NuGen a safe acquisition?

After Toshiba designated KEPCO a priority negotiation partner in Dec. 2017, the Guardian and other UK news outlets used words like “rescue” and “save” in their reporting on the issue. South Korea was presented as coming to rescue the Moorside project from the crisis that had befallen it with the decline of global nuclear power.

Neither the South Korean government nor KEPCO had any intention of accepting the CfD arrangement. After eight months of demands for profitability guarantees, the UK government recently announced a new proposal: a regulatory asset base (RAB) approach in which the government would pay a portion of the project costs through guarantees and loans, with the profits from electricity sales to be shared. Both sides plan to conduct joint research on the profitability and stability of the approach.

The UK’s insistence on the CfD arrangement has also drawn strong objections from the French state-run power company EDF, which has been involved in the Hinkley Point effort, and Japan’s Hitachi, which is in negotiations on the Wylfa and Oldbury nuclear power station projects. In 2013, EDF reached an agreement with the UK government to receive guarantees of 92.50 pounds per megawatt-hour for 35 years for power sales from Hinkley Point; now it faces a headache as construction costs have ballooned to 19.6 billion pounds from an initial estimate of 15 billion.

Hitachi, which acquired the Wylfa/Oldbury project company Horizon Nuclear in 2012, has also been involved in a tug-of-war with London for the past several years. On May 17, the Yomiuri Shimbun newspaper reported that the UK government was changing its position and providing support in loans from 2 trillion yen (US$18 billion) of the 3 trillion yen (US$30 billion) in total project costs. Industry observers predicted a strong likelihood Hitachi will also pull out of the UK if the two sides cannot bridge their differences.

In addition to the project conditions, critical attitudes on new power plant building in the US are another factor to consider. In Nov. 2017, the House of Commons Public Accounts Committee warned that the government would pay a steep electricity purchasing price for ignoring the interests of power consumers on the Hinkley Point project. Its claim was that the government’s guarantee of 92.50 pounds per megawatt-hour to EDF posed too great a burden on the British public. The National Infrastructure Commission (NIC), an advisory body to the British government, warned on July 10 of the need to slow down with some of the new project, stressing a global decline in the economic feasibility of nuclear power. If the growing critical opinion does lead to a change in UK policy or raises the specter of uncertainty for the project, it could spell a serious crisis for KEPCO.

“It’s worrying to think South Korea could end up in the same place as France and Japan, which are now struggling with issues of the risks of profitability of nuclear power projects,” said Park Jong-woon, a professor in the nuclear power and energy systems engineering department at Dongguk University.

“Instead of regarding exports as a target for a breakthrough in the move away from nuclear power, we need a more circumspect approach,” Park suggested.

By Choi Ha-yan, staff reporter

Please direct comments or questions to [english@hani.co.kr]

button that move to original korean article (클릭시 원문으로 이동하는 버튼)

Related stories

Most viewed articles