RWE, E.ON scrap 15 billion pound government nuclear plan

Thu Mar 29, 2012 6:51pm BST

The headquarters of German utility giant E.ON is pictured before the annual news conference in Duesseldorf March 14, 2012. REUTERS/Ina Fassbender

The headquarters of German utility giant E.ON is pictured before the annual news conference in Duesseldorf March 14, 2012.

Credit: Reuters/Ina Fassbender

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LONDON/DUESSELDORF (Reuters) - German utilities E.ON (EONGn.DE) and RWE (RWEG.DE) have pulled out of a 15 billion pound plan to build new nuclear power stations in Britain, throwing into doubt the government's push for a new fleet of nuclear plants by 2025.

The companies said Germany's sudden decision to phase out nuclear power, the high running costs of their Horizon joint venture and the long lead times required for nuclear plants resulted in the decision to sell the venture.

"A strategic decision has therefore been made by both RWE and E.ON that they will not develop new nuclear power projects in the UK through the Horizon joint venture," the companies said in a statement, confirming what sources close to the negotiations had earlier told Reuters.

The companies said they would look for a buyer for Horizon to ensure that work on its Wylfa site on the Isle of Anglesey, including a power grid connection, would be taken over quickly.

RWE said it had invested a relatively modest amount, in the low triple digit millions of euros, in the joint venture project.

RWE shares were down 0.94 percent and E.ON's stocks traded 1.27 percent lower at 1244 GMT on Thursday.

UK NEW BUILD DRAWS INTEREST

Britain's Energy Minister said the decision was very disappointing but the country's nuclear new build programme was still attracting considerable interest and that plans to build Britain's next nuclear plant by France's EDF (EDF.PA) and its junior partner Centrica (CNA.L) remained on track.

EDF and Centrica plan to build Britain's first new nuclear plant at Hinkley Point in Somerset, with a final investment decision expected later this year.

Britain's government has proposed to reform the country's electricity market, which will include creating contracts to reward producers of low-carbon electricity, such as nuclear power.

The government plans to lay the so-called Electricity Market Reform (EMR) before Parliament in May, but investors are still waiting for clarity on how the contracts will be set up.

"The EMR details are absolutely imperative. If you haven't got certainty on how (the contracts) might play out, how can you go into discussions with the reactor technology vendor and supply chain to get a real view on costs?" said Karen Dawson, director in the energy department at consultancy PwC.

A source familiar with the discussions between the two utilities also confirmed that they had wanted more certainty from the UK government that nuclear investors would see a long-term return on their money.

"It's about timing. The government was not moving fast enough," the source said.

RWE and E.ON's withdrawal may be a way for EDF to put further pressure on the UK government to provide a favourable market framework for new nuclear plants, Dawson added.

"The government have got to have the EDF project going ahead," she said.

The German utilities had planned to build up to 6,000 megawatts of new nuclear plants in Britain by 2025 and had been due shortly to announce a reactor design choice for Wylfa, the first new plant.

Both businesses have seen profit margins shrink since Germany's decision last year to close its oldest nuclear plants.

Executives at both companies had been hinting that investment in new nuclear plants in Britain was becoming less likely.

E.ON board member Klaus-Dieter Maubach implied earlier this month that the utility's commitment to nuclear was fading, telling a conference E.ON's appetite for nuclear power had "become smaller".

RWE's incoming chief executive Peter Terium previously said a 60 euro per megawatt-hour price for electricity, broadly in line with UK levels, would not warrant construction of a nuclear plant.

RWE confirmed it would not pursue nuclear new build plans in the UK with any other partners.

HORIZON STAFF UNCERTAIN ABOUT JOBS

Horizon's 130 staff were told on Thursday morning that the utilities were actively looking for a new buyer but were left in the dark about whether their jobs were secure, said Mike Graham, National Secretary of union Prospect, which represents some of the venture's employees.

"It would be rather silly to break up the team when there could be other potential purchasers who would want to take an experienced team on board who have knowledge and have been involved in the process to date," he said.

He added that staff had not been told which companies could be interested in buying Horizon.

"We have made good progress in developing out sites, in particular our lead site at Wylfa, and a strong organisation capable of delivering nuclear new build in the UK," said Horizon Chief Operating Officer Alan Raymant.

Westinghouse, one of the reactor designers Horizon was considering for its Wylfa site, said it was disappointed with the decision, but continued to be confident that Britain would proceed with nuclear.

"We're hopeful new investment is going to be found and we continue to work with developers of the site," said Mike Tynan, Westinghouse vice president for UK, Middle East and Egypt. ($1 = 0.6309 British pounds)

(Editing by Anthony Barker)

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