Thursday, 2 January 2014

What Does This Tell Us About 'Nuclear Revival'?

The finances of nuclear energy dealings are very difficult to second-guess. For starters, the cash-flow streams are measured in multiple decades (some would say centuries). This means the exponential aspects run wild: assumptions on inflation / interest / discounts rates are absolutely critical, and the merest decimal can make all the difference. 

That alone could defeat attempts to reverse-engineer the financial workings of the players involved. But there's much more for the observer to contend with: 
  • many of the costs are socialised, de facto if not de jure; 
  • the investments are 'strategic', so normal commercial considerations don't apply; 
  • there are few data-points - the dealings are highly secret; 
  • the players are all inveterate liars. 
But I can't help meself pondering. What, for example, do we make of the news that Iberdrola has agreed to sell its 50pc stake in the UK nuke joint venture NuGen for £85m to Toshiba ? (SSE sold up at NuGen two years ago.) 

The corporate aspects are easy. Iberdrola, as we have long been pointing out, is up the proverbial shitty creek - so no surprises there. (If they sell Scottish Power next, no-one can claim they weren't told). On the other hand Toshiba is up to its neck in the radioactive waters of another creek, and must find non-Japanese outlets for its product. 

But what does the de minimis amount of £85m betoken ? It's chicken-feed, almost a free option: the land alone must be worth that. E.on and RWE each wrote off more than that in sunk costs when they pulled out of the Horizon JV. Is it so low because ... 
  • Iberdrola are really, really desperate ? 
  • the EDF deal doesn't look so rosy from close-up ? 
  • Toshiba don't think they'll get a deal as good as EDF's ? 
  • Toshiba don't think the EU review of the EDF deal is in the bag ? 
  • there is a further consideration for the shares we haven't been told about ? 
  • Iberdrola are offloading some nasty liabilities ? 
  • very little engineering has actually been done by NuGen ? 
  • the Toshiba design is nowhere in the UK permitting process ? 
And so on: insert your own puzzled questions here. Even better, insert your clever analysis - can anyone make sense of it ? 



rwendland said...

Superb analysis ND, you've excelled yourself today. It is puzzling and opaque.

But it's not the UK regulatory GDA process. The Westinghouse (Toshiba 87% subsidiary) AP1000 is most of the way thru GDA - but final stages suspended at the mo awaiting a purchaser. They just need to finish that, maybe 12-18 months, which won't impact timescale seriously.

Of course Hitachi buying Horizon will have impacted the decision. Horizon was considering AP1000 and Areva EPR for build, so were a possible purchaser of the AP1000 prior to being bought, and having ABWR chosen instead for them. So Westinghouse might have been out of the UK game, had not Toshiba made this move.

Interesting it is now the reactor vendors (or close partners) that have to finance new nuclear, rather than the generating companies as in times past. Rather gives Russia a bit of an advantage, as they were early in with the Build-Own-Operate (BOO) model for VVER Gen-III reactors, as in Turkey's Akkuyu project.

rwendland said...

... NuGen don't actually own the land near Sellafield, only an option - though they had to pay £70 million just for the option. So NuGen asset value probably isn't that high. WNN reports that "The transaction is subject to ... the extension of an option to purchase land for the project, and the release of project-related guarantees granted by Iberdrola." Wonder what the "project-related guarantees" means.

Nick Drew said...

glad you happened along Mr W, I was beginning to think I'd stumped everyone

"project-related guarantees" - yes indeed, that's just the sort of thing I meant

rwendland said...

Seems to me the EU review of the EDF deal is pretty iffy for EDF (+Hitachi & Toshiba), and perhaps a godsend for Joe UK Public.

Have you seen the telegraph story claiming "European Commission is to order Britain to end [onshore] wind farm subsidies."

If the EU is going to order the end of 15-year-long £90/MWh offers for onshore wind on the basis that it is a mature technology, how can they OK a 35-year-long £92.50/MWh offer to the much more mature nuclear technology?

Seems some very heavyweight/brutal lobbying of the EU by EDF and the French will be required to get the Hinkley deal OK'd.

This statement applies to nuclear as much as wind:

Connie Hedegaard, the EU’s climate action commissioner, said ... "My view is that if you have mature technologies, renewables or not, they should not have state aid. If they can manage themselves why have state aid?"

Nick Drew said...

yes I did, and I echo the comment that for once the EC may have the right of it - good on yer, Connie

there was a rather incomplete story just before Xmas that the EC is also butting out of shale-gas E&P regulation (but I haven't yet found a good write-up of this)

Joe Public may yet have cause to be grateful that UK free-market principles have pretty much prevailed in EC energy policy formulation

the great curate's egg that is the EU!

rwendland said...

Interesting that the Russians are saying their westernised verion of the VVER-1200 reactor can produce leccy for €50 (£41.40) per MWh in Finland. OK, that will probably inflate a bit by the time it is built, and uses cheap Russian govt money as finance, but still looks way less than Hinkley C.

Amazing how badly the coalition govt was rolled over in this deal. They should have had the understanding and confidence to say no to EDF, and wait for Hitachi, Toshiba et al to come forward with far better offers in a year or two's time.

My guess on this deal was that Toshiba desperately need to fill the AP1000 build-pipeline a few years forward to sustain the AP1000 as the western new build, and Iberdrola is pretty desperate to get out of some guarantees they foolishly gave GDF.

Did you notice Toshiba wants to buy part of GDF's stake as well? So it will be majority owner. Be interesting to see what price GDF sells at.

Nick Drew said...

bit of a ransom strip, that extra few %

please Conni, save us from our own government

rwendland said...

I have a feeling this is not really a done deal yet. I read somewhere it wasn't press released, of gossiped about, but slipped out from a regulatory filing Iberdrola had to make in Spain.

I guess Toshiba did't want this out until the sale agreement of some GDF Suez shares had been finalised. I suspect the Iberdrola side of the sale is conditional on a GDF sale being agreed - so it could fail.

Budgie said...

"UK free-market principles have pretty much prevailed in EC energy policy formulation".

No, ND, you can't complain about government (taxpayer) subsidies for various forms of energy and at the same time claim that free market principles have prevailed.

The EU may have a (new) "view" that the state "should not" subsidise energy but that view is only partial, and not in effect at the moment anyway.

Budgie said...

I welcome the news flow which tends to indicate that the new Nuclear will actually get built, despite the previous jeering of Nick Drew and Rwendland.

Though I would much prefer to see the engineering cost to build separated out from the regulatory costs. And I would much prefer to see Thorium reactors being built anyway.

Nick Drew said...

non sequitur, Budgie - though it's a sorry story

(1) through the 80's, 90's and early 00's the UK developed and deployed a coherent free market policy & strategy [with inevitable pragmatic aspects and indeed shortcomings] AND sold it, intellectually, to the EC

(2) the UK itself started back-sliding from around 2003 (with the bail-out of British Energy, and various other bad decisions I have written about here ad nauseam)

(3) come 2008 and the UK is starting to go against its former free-market principles big-time

(4) 2014 and we may be grateful to Connie for being a better guardian of the flame than Davey / Huhne / Miliband, not to mention Osborne / Cameron

by the way, if your nationalist proclivities (may I call them that?) are in any way gratified by the new Jap-Franco-Sino "UK" nuclear sector, I'm surprised

personally I have no probs with inward investment (as you know) but I sure as hell don't like seeing them lured by unnecessary tens of our billions

rwendland said...

I wouldn't characterise it as jeering Budgie, just pointing out new nuclear leccy would cost about twice that of existing generating plant, against the predictions of nuclear supporters. Now well established by the 35-year £92.50/MWh +inflation deal that had to be offered to EDF+China to build the first one.

Even if Thorium was established now as a better fuel than Uranium, rather than a R&D topic, it would take 15+ years before it would get to the point that private investors could fund volume roll-out. A small prototype would have to be built and run for a while; then a small pre-production reactor would likewise have to be built, run for 2 years, spent fuel cooled for ~2 yeras, then analysed to confirm behaviour matches computer model. etc. Possibly a demo full size pre-production reactor would also be need to be run happily for a few years to convince private investors. Nuclear is a time-consuming business.

All the recently published "Nuclear Energy Research and Development Roadmap: Future Pathways" doc says on Thorium is that it is a *possible* UK research avenue:

"... Thorium reactors are, therefore, expected to be subject to the same fuelling limitations in roll-out as fast reactors, in which the rate of commissioning is constrained by the rate of production of start-up fuel from the existing reactor fleet.

Thorium-fuelled variations of current reactor designs, as well as novel thorium-fuelled reactors, may allow different fuel breeding ratios from their uranium-fuelled counterparts. Assessing thorium-fuelled reactors and understanding the implications for the attainable rates of expansion of nuclear capacity will be important for understanding the potential role of thorium in a UK fuel cycle.

Thorium fuels are also likely to differ from uranium fuels in their waste characteristics, including their radiological properties and the amounts of heat they generate. These waste characteristics will vary with the type of reactor in which thorium fuels are used and individual systems may offer significant advantages or barriers to the waste's management and final disposal. Again, further analysis and fuel cycle modelling will be necessary to understand the implications on waste management and disposal of using thorium fuels."

Anonymous said...

You'd think we might have worked thorium out when we had Winfrith Heath using it back in the 60s. They ran the Dragon reactor for nine years on (IIRC) a variety of fuels including thorium. And the US ran a molten salt reactor back in the day.

rwendland said...

Anon, very good link, thanks.

But the article did say "most proponents believe that thorium’s potential would be best realised ... [with] fuel as a liquid". Dragon was a solid fuel reactor, so not too useful for the modern approach. "no [liquid fuel] LFTRs have ever been built", so we are certainly in initial R&D territory, even if the 1960s Oak Ridge non-thorium Molten Salt Reactor had some similarities.

Various quotes show how much basic R&D still needs to be done:

* "The reprocessing steps have been demonstrated outside a working reactor ... but doing things like having a fluorination column and a reduction column inside containment, that could be run without intervention for a long time, that still has to be demonstrated.’

* "The heat exchanger has fission products on one side, it’s very hot, and ... need regular maintenance and inspection, but you won’t be able to access this one, even remotely, for the whole 40-60 years the plant is operating. And the integral processing plant is extracting very hot fission products which need to be taken somewhere and put into safe containment. I haven’t seen anyone tell us what that plant would look like.’"

* "You’ll have fission products everywhere within the primary circuit. ... but you’re dealing with the whole periodic table here and all the chemistries are different; in reality I think some of them would migrate out of the salt."

So a whole bunch of expensive sounding R&D is needed. And addressing ND's concern on Keynsian civil service spending we have:

"'There’s a real risk that we’re going to lose our nuclear skills base in 5-10 years,’ he said. ‘To protect the nuclear industry, we need to be doing cutting-edge advanced R&D. ... If there’s a chance that we’ll need these reactors in 25-35 years time, we need to have a continuing R&D programme now.’"