RWE reviews involvement in UK nuclear programme

Sources say German-owned utility company has started an internal probe of its plans to build two atomic power stations
Hinkley A nuclear power station
The control room of a nuclear power station. The possibility that RWE could back out of the British nuclear newbuild programme is just the latest in a series of blows to hopes of a lower carbon economy. Photograph: Martin Argles for the Guardian Martin Argles/Guardian

The government's energy policy took another blow on Friday as major energy provider RWE reviewed whether to scale down or abandon its UK nuclear programme.

The German-owned utility, which owns the npower supply business, has started an internal probe of its plans to construct two possible atomic power stations at Wylfa in Wales and Oldbury in Gloucestershire.

The move follows a decision by SSE to pull out of a nuclear newbuild project in Cumbria, and the Guardian's revelation on Thursday that Scottish Power is preparing to shelve the UK's only pilot scheme for carbon capture and storage (CCS).

At the Conservative party conference this week, George Osborne questioned the "affordability" of the low-carbon agenda at a time of financial hardship, although there are binding commitments to meet European Union CO2 reduction targets.

The government has battled to encourage companies to construct a new generation of nuclear power stations with promises of a floor price on carbon. But it is facing a range of difficulties, not least caused by Germany, Japan and other countries abandoning atomic power after the Fukushima disaster.

RWE faces huge financial losses as a result of the Berlin decision to close existing nuclear plants early and is already talking of the need for asset disposals and job losses as well as a possible equity tie-up with Russian gas giant, Gazprom.

RWE insisted: "We do not comment on speculation." But it has previously denied reports from Germany that its plans could be changed with regard to British nuclear plants.

However, well-placed sources told the Guardian that the company was looking at all possible aspects of the Horizon Nuclear Power joint venture it operates with E.ON, that would build at Wylfa and Oldbury. "There is a strategic review going on and there are a lot of discussions about all aspects of it including whether new partners could be brought in," said one of the sources. "It's not surprising [RWE] scrutiny has intensified given what has happened in Germany and the way the British nuclear projects have been left out on a limb."

Industry experts point out that any tie-up with Gazprom would only make any British nuclear involvement even more difficult as there would likely be political objections to Russia being involved in UK nuclear power.

Meanwhile, news that Scottish Power was close to pulling out of the Longannet CCS project in Fife has alarmed Scotland's first minister.

"It's hugely concerning," said Alex Salmond. "I can tell you I spoke to [energy secretary] Chris Huhne about it yesterday. I'm not going to tell you what was in the phone call, but there are a number of things [at issue]. There's the uncertainty about electricity market reform (EMR) is creating, there's the lack of clarity of decisions in terms of EMR which is having substantial consequences across a range of technologies," he added.

"My appeal [is] to the Department of Energy and Climate Change (Decc) and to the Treasury, and incidentally, I'm not certain this is just Decc at work here. I think Decc is reasonably enthusiastic. I detect the dead hand of the Treasury behind it … [my concern] is that this is a project of European significance which is vital for the energy configuration not just of Scotland but for lots of places. Of course, the lessons learned at Longannet would be applicable on a continental basis. If it doesn't go ahead none of these lessons will be learned."

Longannet was spearheading a CCS drive that was meant to be rolled out across Europe but has also been under consideration worldwide. Oil companies such as BP were originally at the forefront with a plan to build a scheme at Peterhead in Scotland, but this was abandoned and it has since given up on another pilot scheme in the US.

Supporters have claimed that CCS involves a relatively simple adaptation of existing techniques but an in-depth study for Longannet undertaken by Scottish Power and its partners Shell and the National Grid have revealed that there are many complex issues to be overcome, not least the tremendous cost. The government has promised £1bn for the 300MW scheme in Fife but the review suggests far more would be required to convince the developers to go ahead with it.

Fresh blow to low-carbon economy hopes

The possibility that RWE could back out of the British nuclear newbuild programme is just the latest in a series of blows to hopes of a lower carbon economy - inflicted by industry and government.

Last week another utility, SSE, said it was abandoning a consortium considering atomic power stations near Sellafield in Cumbria while Scottish Power is on the verge of dropping out of the only real carbon capture and storage project.

But ministers have undermined the low-carbon drive themselves by postponing the introduction of a Renewable Heating Incentive subsidy scheme and scaling back the feed-in tariff for solar power.

George Osborne promised at the Conservative party conference to move "no faster" on green issues that anyone else in Europe on the grounds it could make the UK commercially uncompetitive.

Environmentalists were also appalled at other ministers promoting what they saw as populist and anti-green initiatives such as increasing the speed limit on motorways and increasing the frequency of refuse collections in a move which could undermine recycling.

A wave of hardline industrialists and backbench politicians have recently raised questions about whether Britain can really afford to subsidise expensive offshore windfarms and proposed a return to a "dash for gas."