By Jim Green on 13 April 2017
The nuclear power crisis escalated dramatically on March 29 with the announcement that US nuclear giant Westinghouse, a subsidiary of Japanese conglomerate Toshiba, had filed for Chapter 11 bankruptcy protection. The filing marks the start of lengthy and complex negotiations with creditors and customers and the US and Japanese governments.
The companies are in crisis because of massive cost overruns building four AP1000 nuclear power reactors in the southern US states of Georgia and South Carolina. The combined cost overruns for the four reactors amount to about US$11.2bn and counting. Stephen Byrd from Morgan Stanley said that the cost of the plants, if completed, will be about twice Westinghouse’s original estimate.
The crisis escalated again on April 11 when Toshiba released unaudited financial figures and noted in its financial statementthat there is “substantial doubt about the Company’s ability to continue as a going concern”. Toshiba reported a net loss of US$5.9bn for the Oct.‒Dec. 2016 quarter, mainly because of a US$6.3bn writedown on Westinghouse. Equity stood at negative US$5.7bn as of 31 March 2017.
Adding to the drama, auditor PricewaterhouseCoopers did not endorse the April 11 financial statement and instead submitted a statement emphasising the risks to Toshiba’s future.
Toshiba had already twice delayed release of its financial figures, and released unaudited figures on April 11 in the hope of avoiding a stock exchange delisting that would worsen the crisis engulfing the firm, increasing financing costs and exposing it to further lawsuits from shareholders.
But all that can be said about the release of hideous figures, accompanied by a disclaimer from the auditor, is that it was the least-worst of Toshiba’s options. The company still risks being delisted. Toshiba was already sitting in the fiscal naughty chair, its shares designated “securities on alert” due to a profit-padding accounting scandal from 2008‒2014 that was revealed in 2015.
Financial figures for the March 2016 ‒ March 2017 fiscal year will not be released until mid-May. Toshiba says that it could end up with a net loss of US$9.1bn for the fiscal year, well over double the estimate provided just a month earlier. “Every time they put out an estimate, the loss gets bigger and bigger,” said Zuhair Khan, an analyst at Jefferies in Tokyo. “I don’t think this is the last cockroach we have seen coming out of Toshiba.”
Toshiba will still be liable for existing cost overruns with the four AP1000 reactors in the US but the bankruptcy filing may limit its liability for future cost overruns. Thus Toshiba has somewhat reduced the likelihood of facing bankruptcy itself … by throwing Westinghouse under a bus. The bankruptcy filing bodes poorly for Westinghouse and the AP1000 projects in Georgia and South Carolina ‒ the future of the company and its reactor projects are in doubt.
Even if Toshiba and Westinghouse survive the unfolding crisis, some of their reactor projects and plans will not. Four AP1000 reactors under construction in China will likely be completed, but plans for more AP1000 reactors in China seem unlikely to progress, and plans for 6‒12 AP1000 reactors in India will likely be shelved.
Toshiba has tried but failed to sell Westinghouse several times already so must instead sell off profitable parts of its operations ‒ including its highly-profitable memory chip business ‒ to stave off bankruptcy.
Incredibly, Toshiba chief executive Satoshi Tsunakawa said in mid-March that Toshiba might have to pay a buyer to take Westinghouse off its hands.
So Friends of the Earth could take control of Westinghouse and use the accompanying payment to turn it into a renewable energy start-up or a karaoke bar franchise? Perhaps, but anyone willing to take Westinghouse off Toshiba’s hands would presumably also be taking on a debt load as well as future risks associated with company’s nuclear business.
Meanwhile, French company Engie has exercised its right to sell its 40% stake in NuGen to Toshiba. NuGen is the consortium which hoped to build three AP1000 reactors at Moorside, near Sellafield, in the UK. Toshiba wanted to sell its 60% stake in NuGen, and now wants to sell its 100% stake.
A big chill
A big chill
Much more detail could be provided about the possibly fatal problems facing Toshiba and Westinghouse, but let’s instead put the issues into context.
Beyond the direct impact of the unfolding crisis on numerous reactor projects around the world, the most important impact of the crisis is the chilling effect it will have ‒ and is already having ‒ on the nuclear power industry.
The AP1000 fiasco in the US shows that industry giants can be brought to their knees by cost overruns on just a few reactors. Further confirmation comes from two French EPR reactors under construction in France and Finland: combined cost overruns amount to at least US$13.5bn and counting, and French utilities EDF and Areva would both be bankrupt if not for repeated multi-billion-dollar government bailouts.
Governments, energy utilities and companies, banks, and investors will be considerably less likely to gamble on nuclear power in light of recent events. Not many energy utilities and companies are as large, and as capable of absorbing debt, as Toshiba and Westinghouse. And few are as experienced: Toshiba has built 20 reactors in Japan (some in joint ventures), and Westinghouse has built 91 reactors globally. Yet cost overruns on four conventional reactors have brought these industry giants to their knees.
Nuclear lobbyists freaked out
The French Liberation newspaper said on March 29 that the Toshiba / Westinghouse crisis, and the huge problems facing French utilities EDF and Areva, forebode a lasting “nuclear winter”.
A February 15 piece in the Financial Times said: “Hopes of a nuclear renaissance have largely disappeared. For many suppliers, not least Toshiba, simply avoiding a nuclear dark ages would be achievement enough.”
Nuclear advocate Rod Adams wrote in Forbes on March 27: “Outside of Asia and Russia, prospects for nuclear power plants in the extra-large size range seem to be dimming by the week.”
Ted Norhaus from the Breakthrough Institute, a pro-nuclear lobby group, wrote on March 27 about his ideas to forge “a globally competitive advanced nuclear sector … from the ashes of today’s dying industry”. His innovative, ecomodernist proposal is to supersize taxpayer subsidies to the nuclear industry, combined with some Silicon Valley-inspired tish and fipsy about “radically reorganizing the nuclear sector” to facilitate “bottom-up innovation, led by start-ups, not large incumbents”.
Following the Westinghouse bankruptcy filing, the Breakthrough Institute’s Michael Shellenberger said: “I’m freaked out, honestly. If we were building nuclear plants, I wouldn’t be so worried. But if nuclear is dying, I’m alarmed.5
Recent articles from the Breakthrough Institute and other nuclear lobby groups have warned of nuclear power’s “rapidly accelerating crisis“, a “crisis that threatens the death of nuclear energy in the West“, “the crisis that the nuclear industry is presently facing in developed countries“, and noted that “the industry is on life support in the United States and other developed economies“.
Of course those lobbyists are dramatising the situation to highlight the importance and urgency of supersizing taxpayer subsidies to the nuclear industry. If the nuclear power industry is dying, or if it is dying in the West, that will take some decades to play out. Nonetheless, nuclear power growth can be confidently ruled out in the US, Japan, across EU countries combined, and in numerous other countries for the foreseeable future … not to mention the 160+ countries that are nuclear-free and plan to stay that way.
The industry is downsizing and the recent Toshiba / Westinghouse crisis is the sort of convulsion that inevitably attends an industry-wide downsizing. Smart money has already walked: the UK Nuclear Free Local Authorities noted on April 4 that seven energy utilities and companies have abandoned plans to build new reactors in the UK over the past decade.
The nuclear industry may or may not be dying, but it is certainly in deep trouble and downsizing. After a growth spurt followed by 20 years of stagnation, nuclear power is approaching the Era of Nuclear Decommissioning (END) and recent events tend to confirm that the industry is indeed at the beginning of the END.
Dr Jim Green is the national nuclear campaigner with Friends of the Earth Australia and editor of the Nuclear Monitor newsletter produced by the World Information Service on Energy.
RenewEconomy Free Daily Newsletter