- By Region
The negotiations concerning the sale of the Horizon nuclear project to a Chinese-backed consortium are not the first time the UK has turned east to help keep the lights on.
The London Olympics
were partly powered by electricity distribution networks owned since 2010 by the investment vehicle CKI, which is controlled by Li Ka-shing, the Hong Kong billionaire.
Click to enlarge
Chinese investment in the UK has grown sharply in recent years, with deals in the water and electricity markets as well as North Sea oil and gas.
China’s main sovereign wealth fund bought a stake in Thames Water in January and last month Chinese state-backed oil groups completed two takeovers of oil explorers off the British coast.
The UK is one of the world’s most open markets for takeovers and, unlike the US, Canada, Australia and many other European countries, has no law to limit foreign investment.
George Osborne, the chancellor, visited China in January, where he held talks with Lou Jiwei, chairman of the China Investment Corporation, the country’s $482bn sovereign wealth fund, as well as the Industrial and Commercial Bank of China. The chancellor is determined to convince Chinese investors to put money into UK infrastructure projects.
But the attempt to buy into Britain’s nuclear programme marks a significant change of gear. Not only will this be the first investment into new build projects in the UK – as opposed to takeovers of existing assets – it is also in a controversial sector.
For China, the project provides an opportunity to showcase its expertise in an OECD country. “If you can be at the top table in the UK, that’s a great selling point around the world,” said one of the people close to the Horizon project.
China has the biggest nuclear programme in the world, with more than 25 nuclear plants being built across the country.
“All of a sudden China is the most experienced nation in building new nuclear plants in the world,” says George Borovas, a partner at Pillsbury, a law firm that specialises in the energy industry.
He adds that the projects so far appear to be on time and on budget, in contrast to the delays and cost overruns seen at the Olkiluoto project in Finland, being built by Areva and TVO, and the Flamanville project in France, being built by EDF. But he also says there is a “certain sensitivity” around Chinese involvement in British nuclear power.
The potential for political conflict has been highlighted by Nick Butler, the former Downing Street energy policy director. He wrote in a recent Financial Times blogpost that Chinese involvement in the UK energy business could be a concern: “They will be inside the system, with access to the intricate architecture of the UK’s National Grid and the processes through which electricity supply is controlled, as well as to the UK’s nuclear technology.”
Chinese nuclear companies would be using western nuclear technology in the UK, such as reactors designed and manufactured by Areva and Westinghouse, with their involvement focused on the construction and running of power stations.
The British government says the Horizon deal is a matter for the owners, Eon and RWE, the German utilities. However, some UK officials are closely involved and are aware that any bid would have to be acceptable to politicians and the public.
This sensitivity explains why officials would prefer the Chinese bidders not to hold majority equity stakes in Horizon and have ensured that they have partnered with companies from other countries. Yet the billions of pounds required to fund the construction of new nuclear plants – likely to come from Chinese lenders – means that in reality the successful consortium could be dominated by Beijing.
“They really are desperate to get this deal off the ground,” said one person familiar with the talks. “If the Chinese are the only option then they have no choice, but that doesn’t mean people aren’t uneasy.”
That sense of urgency reflects the growing doubts about the slow progress of the entire programme to replace Britain’s fleet of ageing reactors.
With ministers determined to reduce the UK’s dependency on fossil fuels, the new nuclear plans are a key plank in the country’s energy strategy.
The decision by Eon and RWE to sell Horizon – a result of Germany’s policy to phase out nuclear power earlier than expected – was widely seen as an ominous sign for the entire programme.
John Robertson, a Labour member of the energy select committee, said that with thousands of jobs dependent on the programme, Britain could not afford to be choosy about who buys Horizon. “Am I happy it’s a Chinese company rather than a British company? No,” he said. “But I would rather somebody did it than nobody did it.”
UK efforts to build new nuclear power stations to replace ageing reactors involve three main ventures: EDF’s projects with Centrica, Horizon Nuclear Power and the NuGen consortium.
EDF, the French state-backed energy company, is leading the pack with plans to build two reactors at Hinkley Point in Somerset and then two more at Sizewell in Suffolk. It is hoping to make a final decision by the end of this year. Centrica, the owner of British Gas, has an option to invest in the new plants, and EDF has said it is seeking other partners to supply funding and spread the risk.
But whether EDF goes ahead will depend on negotiations with government over setting a floor price for power generated from low carbon sources – nuclear as well as renewables – and whether this will be high enough to justify the huge investment required.
The bidders for the Horizon venture will be watching the talks with interest. German energy groups Eon and RWE are selling Horizon, which plans to build two reactors at Wylfa on Anglesey and two more at Oldbury in Gloucestershire, in line with German government policy to phase out nuclear power.
French reactor manufacturer Areva is bidding with China Guangdong Nuclear Power, a state-owned group, while Toshiba Westinghouse, the Japanese-owned nuclear reactor manufacturer, has teamed up with State Nuclear Power Technology Corp of China and Exelon, the US power generator. Final bids are due at the end of September, with a result expected in November.
The third group looking to build new reactors in the UK is the NuGen consortium, which currently comprises GDF Suez of France and Iberdrola of Spain. Scottish and Southern Energy pulled out of the project last year to concentrate on renewable energy. NuGen plans to build new reactors near Sellafield in Cumbria, but a final decision is not due until 2015.