Hitachi’s Exit Compounds the Geopolitical Complexity of the UK Plan to Revitalize its Nuclear Fleet
October 1, 2020
In mid-September, Hitachi, Ltd. of Japan formally terminated its Wylfa Newydd nuclear project in the United Kingdom, which had been put on hold since early 2019. The Japanese company’s exit comes at a time when rising tension in UK-China relations threatens the United Kingdom’s plan to revitalize its shrinking nuclear power fleet. Combined with Toshiba Westinghouse’s 2018 decision to walk away from a planned Mooreside project in Cumbria, the termination of the Wylfa project in Wales leaves the fate of the UK nuclear plan heavily dependent on China, amplifying the complexity of the UK government’s decarbonization strategy.
The UK nuclear power fleet provides 20 percent of the country’s power supply today. With 15 out of 16 nuclear reactors planned to shut down by 2023, the UK government, led by then-prime minister David Cameron, formally welcomed Chinese engagement in its updating of nuclear infrastructure during President Xi Jinping’s October 2015 visit to the United Kingdom. The deal consists of China General Nuclear (CGN), a Chinese state-owned nuclear company, gaining a 33.5 percent stake in the Hinkley Point C project in Somerset, a 20 percent stake in a planned Sizewell C project in Cambria, and a controlling share in a proposed Bradwell project in Essex. In addition, France’s majority state-owned Électricité de France (EdF), which owns and operates nearly all of the UK nuclear fleet, welcomed the Chinese investment, as the company faced difficulty financing the Hinkley project alone.
Half a decade and two cabinets later, the UK nuclear revitalization plan faces an uncertain future. Of the six sites that were identified over a decade ago for the revitalization initiative, three that involved Japanese reactor companies—Moorside (Toshiba), Wylfa (Hitachi), and Oldbury (Hitachi)—are now mothballed or cancelled. Of the remaining three projects—all backed by EdF and CGN—the Hinkley project is the only one currently under construction in the United Kingdom, with a completion target in the mid-2020s.
However, the future of these Franco-Chinese nuclear projects is tangled by rapidly deteriorating UK-China relations, caused in part by UK prime minister Boris Johnson’s decision in July to phase out Huawei’s 5G technology from the UK telecommunications network. Huawei—a Chinese company under scrutiny for its ties to the Chinese government—has supplied equipment to the United Kingdom since 2005. It was banned despite pressure from China, including a warning from China’s ambassador to the United Kingdom that the 5G decision could have an adversarial effect on Chinese involvement in the UK nuclear power plants.
How likely is China to execute its threat to walk away from the UK nuclear power program? China’s calculation on whether to proceed with the nuclear investment in the United Kingdom is as much about geopolitics as it is about economics. Hualong One, China’s flagship reactor for exports that China describes as its most advanced reactor for power generation, has been before the UK regulator for design review since early 2017. Approval from highly regarded UK nuclear regulators would not only help market the Hualong One reactor globally, including in the advanced industrialized economies, but would also signify that China has entered the global competition as a supplier of nuclear power technology. And the Bradwell project is the fastest path for Hualong One to be built in an advanced industrialized economy. In February 2020, the generic design assessment for Hualong One entered the fourth and final stage in the assessment process. To date, Pakistan is the only country hosting the Chinese construction of the Hualong One reactor.
Ultimately, the Chinese may not have the final say in this deal. The prospect of constructing Hualong One on UK soil has dimmed due to security concerns. The UK government is reportedly considering options to replace CGN as an investor in some of the Franco-Chinese projects. The Wylfa termination largely stemmed from the level of the guaranteed price that the UK government offered under the contract for difference model. The taxpayer-backed guaranteed price is essentially the difference between a “strike price,” which reflects the cost of investing) and a “reference price,” which is a measure of the average power price in the United Kingdom). At £75 ($96.50) per megawatt hour (MWH), the strike price was likely too low for Hitachi to justify the level of risk, especially as the company has stated that “the investment environment has become increasingly severe due to the impact of COVID-19.” In comparison, the Hinkley Point C project obtained the strike price of £92.50 ($119) per MWH, which was roughly double the wholesale power price in the United Kingdom at the time of agreement. Whether the UK government will become a direct investor, and what level of stake it is willing to take, will be determined by how central nuclear remains to the country’s decarbonization plan, as well as what other options the government might have to mitigate the geopolitical risk.
Jane Nakano is a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.
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