By Mari Iwata
TOKYO--Nuclear energy companies are increasingly being asked to
shoulder some of the cost of building new plants, as governments
try to spread the risk involved in developing nuclear power.
Europe's largest new nuclear power project, Moorside in
northwest England, is being developed by NuGeneration Ltd., a joint
venture between Japan's Toshiba Corp. and French utility GDF Suez.
In June, Toshiba bought a 60% stake in NuGen from GDF Suez and
Spanish utility Iberdrola for GBP102 million ($160 million).
Toshiba plans to have its U.S. unit, Westinghouse Electric Co.,
provide up to three reactors at Moorside, which is expected to cost
around GBP10 billion.
Meanwhile, Hitachi Ltd., also from Japan, is in talks with
Lithuania about developing that country's first nuclear power
plant, and is considering taking an equity stake, said Takashi
Masui, general manager of Hitachi's Europe Nuclear Energy
Development Division.
Hitachi has already invested in one project. It bought 100% of
Horizon Nuclear Power in the U.K. for GBP696 million in 2012 from
two German power companies. Horizon plans to build two or three
reactors each at two sites in western England through Hitachi-GE
Nuclear Energy Ltd., a joint venture between Hitachi and General
Electric Co.
"It used to be simple--we got an order and built [a reactor].
Nowadays, plant manufacturers can't avoid accepting the growing
need to be equity investors," Mr. Masui said.
Moorside took an important step forward last week when the U.K.
government agreed to help NuGen secure a loan guarantee. The need
for such a deal underscores the difficulty of developing new
nuclear power projects as lenders and many people have grown wary
of nuclear power after the Fukushima disaster in 2011.
The biggest driver of technology companies taking equity stakes
is risk aversion among governments, particularly during
construction. And the greatest risk exists during the construction
phase, which is prone to long delays and cost overruns that can
change the economics of a project, the International Atomic Energy
Agency said in an October report on new trends in nuclear
financing.
"Naturally, investors and lenders to new projects want to
diversify risks by involving more parties," said Tomoko Murakami,
senior researcher at the Institute of Energy Economics Japan, a
think tank.
To be sure, only a handful of equity deals have been completed.
OAO Rosatom, the state-owned Russian nuclear company, was the first
to accept to this transfer of risk when it agreed in 2010 to assume
full ownership of Turkey's $20 billion Akkuyu project for an
undisclosed price. Rosatom will build and operate the plant, as
well as recycle the nuclear fuel, while seeking to recover its
investment under a long-term power-purchase contract with the
Turkish government.
Rosatom is also considering full ownership in Jordan's Al Arma
project and 51% of Slovakia's Bohunice V3 project, according to the
U.K.-based World Nuclear Association. Rosatom didn't reply to a
question seeking comment on the Al Arma and Bohunice V3
projects.
For Toshiba and Hitachi, ownership stakes overseas provide a
rare source of new business. Japan's nuclear reactors remain idled
in the wake of the Fukushima disaster of 2011, and the country is
unlikely to build new ones soon.
Taking equity stakes isn't only about selling reactors, though.
Toshiba and Hitachi see it as necessary to secure future contracts
for services such as maintenance and fuel processing, which are
often more profitable than reactor sales.
And designing and building new nuclear plants is crucial to
maintaining their edge in technology, providing invaluable
experience for engineers, said Tetsuro Waki, manager of Hitachi's
Nuclear Business Planning & Management Department. "You have to
think for the long run. Once [institutional experience is] lost,
it's not easy to get back to the levels we are now," Mr. Waki
said.
Equity stakes come with risks and difficulties, including
raising what sometimes amounts to tens of billions of dollars from
wary lenders. New nuclear construction is "credit negative,"
Moody's Investors Service said in a report last year. In Europe,
risks include weak growth in electricity demand, particularly in
industry, as well as subdued prices, it said.
Both Hitachi and Toshiba are looking to share some of the risks
themselves. Both say they are already in talks with potential
investors, with any stake sales likely to take place after the
design is completed and before construction is completed.
Government-backed financial guarantees--or for Hitachi and
Toshiba, perhaps, low-interest loans from the Japan Bank for
International Cooperation--make the projects more attractive to
investors. But both companies have already put up the money for
their ownership stakes, so if those guarantees don't
materialize--the U.K. government's still hasn't provided a
guarantee for Moorside, and if that were granted it would still
need approval by the European Union's competition
commission--they'll have a tougher time raising money and the
borrowing costs will be higher, affecting the viability of the
projects. Ultimately, if they fail to raise the money, they could
lose their initial investment.
And there is always a chance, especially in emerging markets,
that a change of government or growing popular resistance to
nuclear power will lead to the project being shelved or scrapped
altogether.
Still, buying in is something Toshiba and Hitachi believe they
need to do, they said.
"Our money is not infinite. We select projects carefully and
invest in good ones," said Takayuki Shibano, assistant vice
president of Toshiba's Nuclear Energy Systems and Services
Division.
Write to Mari Iwata at mari.iwata@wsj.com
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