Hitachi Ltd. (6501.TO) is taking a GBP670 million ($1.1 billion) gamble in its acquisition of a United Kingdom nuclear-power plant joint venture despite its unclear time schedule and revenue outlook, as the Japanese industrial-electronics conglomerate looks to promote its proprietary technology for nuclear reactors.
Hitachi Ltd. (6501.TO) is taking a GBP670 million ($1.1 billion) gamble
in its acquisition of a United Kingdom nuclear-power plant joint venture
despite its unclear time schedule and revenue outlook, as the Japanese industrial-electronics
conglomerate looks to promote its proprietary technology for nuclear reactors.
Late last month,
Hitachi
said
that it would buy British venture Horizon Nuclear Power Ltd. from
Germany
's RWE
AG (RWE.XE) and E.ON AG (EOAN.XE), who put Horizon up for sale in March after
Germany
accelerated its planned exit from nuclear energy in response to the Fukushima
Daiichi nuclear accident in northern
Japan
.
The Horizon project envisages the building and operation of four to six new
nuclear plants at two
U.K.
sites.
The deal surprised some in the industry, since
Hitachi
doesn't operate nuclear plants, and its reactor design hasn't been approved by
the
U.K.
government.
"We are a plant maker. We made this acquisition because we wanted a place
to build our plants," Masaharu Hanyu, the general manager of
Hitachi
's
Nuclear Systems Division, told reporters at a press conference. "We bought
it because we can build BWRs."
Boiling Water Reactor technology so far has been used almost exclusively in
Japan
and
the U.S. Japan's nuclear-power program is at a near standstill, except for two
projects already under construction, while the potentially more lucrative
U.S.
market is seeing reduced interest in nuclear technology due to a glut of
natural gas that makes conventional thermal units more profitable.
To date,
Hitachi
has
only manufactured BWRs based on a General Electric Co. (GE) design. One of the
six units at
Fukushima
was
equipped by
Hitachi
, with
all six being General Electric designs.
The
U.K.
government
has placed nuclear power at the core of its energy policy to reduce carbon
dioxide emissions.
But it has apparently offered few incentives to lower the risks for Hitachi, as
it hasn't yet decided on the price it will guarantee for electricity generated
by nuclear-power plants and hasn't yet authorized Hitachi's BWR technology for
use in the U.K.
The price guarantee and time taken to approve Hitachi's BWR technology
"will have a potentially large impact on the profitability of the
project," said Tomoko Murakami, an expert in nuclear power at the
government-affiliated Institute of Energy Economics think tank.
Asked about these exposures, Mr. Hanyu said
Hitachi
has
already factored in a five-year application period to obtain authorization for
the technology. He said
Hitachi
would
also look to bring in external partners, although he didn't identify potential
candidates.
On Oct. 30, Rolls-Royce Holdings PLC (RR.LN) and engineering support services
company Babcock International Group PLC (BAB.LN) said they had reached
preliminary collaboration agreements with Hitachi to support its delivery of
new nuclear reactors in the U.K.
In its quest for new business overseas, Hitachi approached several other
European countries, including Poland, Finland and Lithuania, even before the
Fukushima accident undercut the domestic market.
In
Lithuania
,
Hitachi
was
selected by the government as the preferred bidder for a EUR6 billion ($7.6
billion) nuclear-power plant project. But in an October referendum, voters
overwhelmingly rejected the ruling Christian Democrat party's plan, leaving the
status of the project uncertain.
Hitachi
's Japanese competitors have
also been hit by sagging demand for nuclear plants after the
Fukushima
accident, but not as severely as
Hitachi
.
Mitsubishi Heavy Industries Ltd. (7011.TO) produces rival pressurized water
reactors. The company has built 24 plants in
Japan
and
supplied parts for around 50 plants in 11 countries. Toshiba Corp. (6502.TO)
produces both BWRs and PWRs. It has built 112 plants in 10 countries, including
Japan
.
The trend toward a greater role by manufacturers is expected to spread. As more
emerging countries seek to build nuclear plants, the manufacturers are now
being asked to take a stake as investors rather than just sign on as
contractors, said Ms. Murakami of the Institute of Energy Economics. But it is
still rare for a plant manufacturer such as
Hitachi
to
buy an entire project, she said.
Whatever the risks, Yukihiko Shimada, senior equity analyst at SMBC Nikko
Securities, thinks
Hitachi
can
afford the gamble.
"The ultimate risk is the GBP670 million"
Hitachi
will
use to buy the project, and "its financial position is strong enough to
sustain even if it is forced to write it off," Mr. Shimada said.
Considering the woes hitting much of
Japan
's
electronics industry,
Hitachi
has
been a notable exception. It posted a Y145.4 billion extraordinary profit
Hitachi
in
the financial year ended March 31 thanks to the sale of its hard disk drive
business to Western Digital. "
Hitachi
will
have a roughly half of the extraordinary profit even after paying for
Horizon," Mr. Shimada said.
For the first six months of this financial year, it posted an operating profit
of Y163.6 billion and revenue of Y4.36 trillion.
Business terms aside,
Hitachi
's Mr.
Hanyu said he wants to use the Horizon project to make BWR technology
"well known globally."
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