The vote to move ahead, at a pivotal meeting on Monday, means the board has accepted the principle of a tripartite investment structure under which Hitachi, the UK government and state-backed Japanese entities would become equal investment partners in a project fraught with risk of huge cost overruns and low profitability.
People close to the Hitachi board, who said ahead of Monday’s meeting that the decision was “ very finely balanced”, said things were now looking positive for a project that many viewed as critical to the British nuclear industry. A memorandum of understanding was expected in June, one of the people said.
The Wylfa Newydd development, located on the island of Anglesey, is also seen by some as a litmus test of UK-Japan trade relations as Brexit approaches.
In recent weeks, and as a gauge of how keenly it wants to bring the project to fruition, the UK government has discussed a number of proposals with Hitachi that reflect the Japanese group’s reluctance to shoulder too large a slab of equity risk. Sweeteners from the UK side included an offer to double the level of its previous guarantee on the loans required to fund construction.
A letter sent by the UK government on the eve of the Hitachi board meeting outlining its latest proposals was received positively by the Japanese company, according to people familiar with the situation. But the same people said objections were raised during Monday’s meeting, and that some directors were concerned Hitachi might be taking on too much financial risk.
The board’s decision to push ahead with negotiations represents a victory for Hiroaki Nakanishi, the Hitachi chairman who is described by people close to him as “the instigator and believer” in this project. Mr Nakanishi will at the end of this week begin his term as the head of the powerful Keidanren business lobby — a group that has been blunt in its assessments of how Japanese groups are threatened by the uncertainties surrounding Brexit.
Of the ¥3tn nuclear project, the UK is proposing an equal equity split of ¥900bn among Hitachi, the UK public-private consortium and a group of government-backed Japanese entities. But negotiations are continuing on the make-up of the consortiums and other financial details, according to people close to Hitachi.
After the board meeting on Monday, Toshiaki Higashihara, Hitachi’s chief executive, told reporters that “nothing has been decided yet”.
Full-cost estimates for the development will not be completed until the end of 2018, and the formal agreement to invest in construction of the plant itself is not expected until next year. That decision will hinge on whether Hitachi is satisfied on a range of financial considerations, including capital cost and return on investment.
Another key factor is the strike price — the guaranteed level at which the plant sells electricity — which is still under discussion. The UK government is expected to back a price about £15 a megawatt hour lower than the £92.50/MWh negotiated for the Hinkley Point C nuclear plant that is under development by EDF.
During discussions in recent weeks, British proposals have included enlarging the level of direct investment from the state. Hitachi has spent more than two years attempting to secure more UK state backing.