Is UK haring off down the wrong path on new nuclear power plants?
In a recent article, Sir Bernard Ingham, former press secretary to Margaret Thatcher, posed an important question: do we want nuclear at any price?
Much of Britain’s existing stock of nuclear generating capacity is due to be de-commissioned over the next decade, and as things stand, we still don’t really know what’s going to replace it. The moment of truth gets ever closer.
Wind, sun, coal, wave, gas – none of these alternative power sources squares the circle in quite the same way that nuclear does. To ensure both that the lights stay on and that legally binding emission targets are met, new nuclear build ceases to be an option and becomes pretty much a mandatory obligation.
Yet alarmingly, the Government’s strategy for delivering this capacity seems fast to be running into the sand. If the Government is serious about new nuclear build, it needs urgently to change tack, and to the horror of the Chancellor – desperate to get on top of Britain’s debts – it may even have to stand ready to put the public balance sheet behind the endeavour. Nuclear, it would seem, is still too big a risk for the private sector to willingly bankroll.
In the Coalition Agreement, the Government backed a new generation of nuclear power stations, but only “provided they receive no public subsidy”.
Meanwhile, those still interested in financing, building and operating the proposed new reactors are falling like nine pins. This week alone we’ve seen another two once interested parties effectively throw in the towel. The Franco Chinese consortium of Areva and China Guangdong Nuclear Power confirmed yesterday that it has ditched its bid to build reactors in Anglesey and Gloucestershire, while retrenchment at Iberdrola, badly hit by the gathering financial crisis in Spain, may well have scuppered plans for new reactors in Cumbria.
With relations between China and Japan at rock bottom, Westinghouse (owned by Toshiba) is also struggling to find the Chinese backing it needs to finance new nuclear build in Britain. Security concerns, which dictate that state controlled Chinese companies be limited to minority stakes, are in any case proving a major obstacle to Chinese participation.
Germany’s two biggest utilities, RWE and EON, pulled out early this year, after the German government, post the Fukushima disaster, announced that nuclear power generation in Germany was to be phased out.
The upshot is that a once crowded line up of interested foreign investors has shrunk down to just one fully committed participant – EDF – and even in this case, the French utility giant’s British partner, Centrica, has said that it can’t take part unless satisfied that all financial risks have been removed.
This is not surprising when you see what’s happened to the cost of nuclear power stations. Rewind to where all this began some four or five years ago under the last government and you find a nuclear lobby which in its pomp did indeed believe that it could finance and build new nuclear power stations at predicable and reasonable cost. All that was needed, Vincent de Rivaz, head of EDF’s UK operation, once confidently told me, was a floor price for carbon, and nuclear could be competitive with any other source of power generation. It could therefore be easily financed.
Since then, the bar has been raised steadily higher, so that today, nobody would be willing to go ahead unless there is a guaranteed price per se for nuclear output at least comparable with other forms of carbon free generation such as offshore wind.
The Government is right now in the midst of attempting to negotiate this price. An announcement was due by mid-November, but the process is proving long and difficult, and a conclusion is now unlikely this side of the New Year.
The shambles surrounding the assessment of bids for the West Coast mainline give little cause for confidence in a fair and transparent decision. In any case, EDF is looking for cast iron and irreversible guarantees before so much as laying the first slab of concrete. Future governments would be equally bound, whatever happened in the meantime.
Just recently, there has also been talk of the Government being asked to underwrite the risk of cost over-runs in construction too. So much of the risk is being transferred to the customer and the taxpayer that you begin to wonder what the point of a private sector solution is in the first place.
As it is, the cost of building new reactors is proving far from predictable. In making the case for new nuclear build back in 2008, EDF said that the expected cost of the new reactor it was building in Flamanville, France, was €4bn, to give a likely price for electricity of £45/MWh.
These costs have since virtually doubled, and still nobody really knows the final bill, or where Flamanville’s economic costs of production will settle. Fukushima has further upped the ante for reactors which are today required to be so robust against catastrophe that they can survive a direct hit by a jumbo jet. Quite recently, EDF angrily denied that it was looking for a guaranteed price in the UK of £140MWh, saying it was not even in that ball park.
But even £100/MWh would be considered by many as too much. In a report for the Department of Energy and Climate Change last year, PB Power calculated the cost of “first of a kind” nuclear at £74/MWh, with the price reducing to £65/MWh once the technology has been proven.
As it is, the cost of nuclear is all in the build. Once the capital is sunk, the ongoing running costs are relatively marginal when compared to other sources of energy production. To guarantee the income stream in perpetuity once the plant is up and running is therefore a quite odd way of underwriting the costs of new nuclear build. Logically, it should be the other way around. Do we really want to be paying a hefty annuity to the French taxpayer for the rest of our lives, which because EDF is state controlled, is in effect what we would be committing ourselves to with a guaranteed price floor?
The Government should scrap this madness while there is still time, and instead of committing future energy users to very high prices, use its balance sheet and cheap borrowing costs to underwrite the capital investment instead. Future prices could then be regulated using a simple return on capital formula, as applied to other utilities.
Do we want nuclear at any price? Obviously not. But if the Government could be persuaded to overcome its aversion to anything that might smack of a public spending commitment, we don’t have to. We could still have nuclear power at a tolerable price.