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Hitachi and SNC-Lavalin pursue the nuclear option

The Germans have quit, the Chinese said no thank you and the French are quibbling over the price, but a Japanese and Canadian consortium said they will do it, come what may. Hitachi and SNC-Lavalin are taking over Horizon, a project to build two nuclear power stations in Britain. The Japanese company, which is in joint venture with the Montreal engineering contractor, said today it would pay £700-million ($1.125-billion) to EON and RWE, the German utilities which set up Horizon three years ago. If you believe the promises, Hitachi and SNC-Lavalin will build two nukes, one in Anglesey in Wales and another in Gloucestershire.

This is hugely good news, not just for the Germans who are pleased at receiving a price that will offset their sunk costs (Hitachi and SNC's bid came in at twice the expected amount), but also for the British government which is belatedly becoming anxious about the consequences of its hopeless energy policy – a confection of greenery, goodwill and not much infrastructure. Massive subsidies for windmills have proved to be an expensive luxury. They generate little extra power and have had the embarrassing effect of driving up prices for taxpayers, as power companies pass onto consumers the government's green energy tariff and extra bills for the cost of the grid upgrades needed to link up hundreds of wind turbines on distant hills and far offshore.

Britain needs lots more power; an electricity generation deficit is forecast in 2015 when some dirty coal power stations are expected to shut down. That will be followed by the closing of nukes built in the 1960s. The cunning plan, launched by the former Labour government, was a relaunch of nuclear power; unfortunately, five years of talk, an auction of sites and the launch of various consortia have not led to the pouring of an ounce of concrete. Hardly surprising, given that the government has insisted that nuclear (unlike windmills) will not get a penny of subsidy. EDF, the giant French state power utility, has acquired a site in Somerset, but is arguing with the government over future electricity prices. EON and RWE fretted over the financial risk and, when Angela Merkel ruled out a German nuclear power revival, they seized on the excuse of trouble at home and threw in the British towel, putting Horizon up for sale. Two Chinese consortia toyed with the idea of buying the project but shied away from a bid, leaving Westinghouse as the only competitor which Hitachi trumped with its generous offer.

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Why is Hitachi so confident when so many are making excuses? Ed Davey, Britain's energy secretary was today at pains to insist that no promise had been made about guaranteeing future electricity prices. The "no subsidy for nuclear" rule is the policy principle which will not be broken, at least in public. But the warnings are coming loud and clear from Ofgem, the energy regulator, as well as countless think tanks, that Britain has few choices if it wants to keep the nation lit. If it isn't nuclear, the remaining options are natural gas imported from Russia and Arabia or a return to dirty coal. The government will be aware that coal consumption surged last year as power companies shunned expensive liquefied natural gas in favour of the old fuel. It will take almost four years for Hitachi and its Canadian partner to build their nuke and we have not even started the regulatory process. My guess is that ministers will cross their fingers, mouth platitudes about the free market but will in the end find a way to fix it for Hitachi and its Canadian friend.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


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