Mitsubishi Heavy Industries withdraws from the NPP project in Sinop, Turkey ~NPP makers need to switch to realistic track in the age of decommissioning~

By Matsukubo Hajime, CNIC

On December 4, 2018, the Nikkei Economic Newspaper published an article entitled: “Turkish NPP: Government-private consortium, including Mitsubishi Heavy Industries, give up on construction.” We were not surprised by this announcement of the withdrawal.

Mitsubishi Heavy Industries (MHI) had planned to introduce four 1,120 MW-class ATMEA 1 reactors (pressurized water reactors developed by ATMEA, a joint venture corporation with the French Framatome, the former Areva) into scenic Sinop and was conducting a feasibility study. The estimated cost in 2013, however, had been two trillion yen, which rose sharply to nearly five trillion yen in April 2018, causing ITOCHU Corporation, which had formed the consortium with MHI, to back out of the project. The power purchase price was fixed at 10.80 to 10.83 cents/kWh for 20 years by the bilateral agreement concluded between the Japanese and Turkish governments in 2013 (excluding fuel costs). Taking into account operation costs and maintenance and management costs, it was clear that it was going to be hard to recoup the original outlay. The feasibility study scheduled to be completed in March 2018 was eventually ready in July. According to various reports, MHI had requested support from the Turkish government, including a hike in the power purchase price, but the Turkish government demanded a review of costs. The result appears to have been that MHI decided that the project was unlikely to be profitable. If the planned ATMEA-1 reactors had been constructed at Sinop they would have been the first of their kind in the world, but this turned out to be the second abandoned NPP order after Vietnam.

The prognosis for MHI had not looked good from the outset. In 2017, the company pulled out of a project for a large-scale passenger ship, posting a loss of 250 billion yen, and development costs for a jet passenger aircraft project had also ballooned to 600 billion yen, four times the original estimate. Mitsubishi-Hitachi Power Systems (MHPS), formed in 2014 through an integration with Hitachi’s thermal power generation division, has also seen its business environment deteriorate, leading to stagnating earnings. To make matters worse, Hitachi has requested the Japan Commercial Arbitration Association to arbitrate a payment of 774.3 billion yen from Mitsubishi due to mushrooming construction costs for a South African thermal power plant boiler for which the order was received by Hitachi before the integration.

The former Areva is also facing tough times over the development of ATMEA-1, the reactor slated for construction at Sinop. France and Finland constructed one each of the European Pressure Reactor (EPR), but as a result of both experiencing long construction delays and huge costs, Areva was forced into effective bankruptcy. With support from the French national Électricité de France (EDF) and funding from MHI and others, Areva was restructured into Orano, which combines the nuclear fuel cycle with renewable energy, and Framatome, a nuclear reactor company.

The situation in Turkey was not much better. The Turkish lira, which traded at around 50 yen at the time of the Japan-Turkey agreement in 2013, slumped to around 20 yen in 2018, and the economy is faltering in the midst of the 2016 attempted coup d’état and President Erdoğan’s increasingly heavy-handed leadership.

The environment surrounding nuclear power is also austere. According to a report issued recently by the International Atomic Energy Agency (IAEA), nuclear power accounted for 10.3% (2,503TWh) of the world’s total power supply in 2017, but the low forecast for nuclear power in 2030 drops to 7.9% (2,732TWh) and 5.6% (2,869TWh) in 2050. The IAEA’s low forecast for nuclear power generation in 2008 was 12.4% (3,522TWh) for 2030. The generating capacity forecast in 2008 was at least 473GWe in 2030, but in 2018 that forecast has fallen to 352GWe, an enormous downward revision equivalent to 100 nuclear reactors.

Even China, which has led global NPP construction, has relaxed the speed at which it is building NPPs due to power demand stagnation, rapid cost decreases in renewable energies, as well as other factors such as rising safety measure costs in the aftermath of the TEPCO Fukushima Daiichi NPP accident. In the latest, the 13th, 5-year-plan, the government has set the target for nuclear power generating capacity for 2020 at 58GWe, but this capacity currently stands at 38.2 GWe and the total capacity now under construction is 15.4GWe. Even if all the NPPs under construction are completed, the country would still be three to four NPPs short of attaining the target. The IAEA database also shows that there have been no new NPP construction starts since 2016.

As new NPP construction in Japan declined, in the 2000s the Japanese reactor makers and Japan’s Ministry of Economy, Trade and Industry (METI) sought overseas markets to which they could export NPPs. However, besides Turkey, failed NPP orders repeatedly occurred in Vietnam, Lithuania, Finland, UAE and the US. After coming within an inch of bankruptcy due to four reactors in the US, for which its affiliate Westinghouse had received orders, Toshiba also dissolved its UK affiliate in November 2018 and withdrew from the Moorside nuclear project in the UK. Most recently, Hitachi has also suspended work on the Wylfa project in Wales. It’s not just finance and economics that is making it impossible for manufacturers to pursue the nuclear export market. The capillary tubes in the steam generators at the San Onofre NPP in the US, the order for which had been received by MHI, ruptured due to pipe wall corrosion, finally leading to the decision to decommission the NPP. Again, with Taiwan’s fourth nuclear reactor, for which Hitachi and Toshiba built the reactor and MHI installed the turbine, the political administration changed after massive demonstrations by citizens, leaving the reactor unable to begin operation. Last year the Taiwan Power Company began returning the unused nuclear fuel to the US.

Regarding the current state of the Sinop project, MHI’s CEO Miyanaga Shunichi said in a media interview on December 12, 2018 that when asked a large number of extremely detailed questions about the feasibility study from the Turkish side, he replied that “We are able to handle the situation within the scope of economic rationality,” and “Firstly, there will be [consultations] between the governments, and then if something arises between the governments we still have a certain amount of leeway and we will reply to you at that time.” The current stage was therefore already “beyond the bounds where we are able to make judgments.” These statements show very acutely the highly convoluted structure in which NPP exports cannot be finalized simply through a company’s commercial acumen.

2019 marks 63 years since the first civil NPP in the world began operation. What has become clear during this time is that nuclear power cannot be run on a commercial basis without government support and that nuclear power is a power source that will cause a severe catastrophe if there is an accident. At the same time, the average years of operation of the current world’s 454 nuclear reactors is 29.5 years, 95 of which have been operating for more than 40 years. The age of massive numbers of NPPs lining up to be decommissioned is therefore approaching rapidly. Even in Japan, 23 NPPs are now awaiting decommissioning.

The reactor makers now need to look TEPCO’s Fukushima Daiichi nuclear power accident directly in the face, and based on the reality that the world nuclear renaissance is never going to happen, should withdraw from the construction of new NPPs.