Nick Butler: Should the UK government fund new nuclear? The availability of alternatives and the costs are what should decide the matter. Within the next few weeks the UK government has to make an important decision that is fundamental to its energy policy and, indeed, to its view of the role of state in economic life. The immediate question is whether public money should be used to rescue the proposed power plant at Wylfa in Anglesey, Wales. As reported in the FT last year, Duncan Hawthorne — head of the Hitachi consortium that aims to build the plant — does not believe the project can proceed without an agreement with the government on the financing structure. He says Hitachi cannot be expected to keep “burning money”. The implication is that public sector capital has to be involved. Nuclear power requires big upfront investment. It is hard to imagine anything below £5bn would make a material difference. Before deciding, the government should address three crucial questions. If funds are provided for Wylfa, will they also be offered to the new nuclear projects at Moorside and Bradwell? Second, if the funds are found for the others, what about Hinkley? The EDF board (and the principal shareholder, the French government) are bound to ask that question, particularly given the state of the company’s finances. But are any of the new nuclear stations really needed? Some people take an emotional, almost religious, view for or against nuclear. Yet the hard facts about the availability of alternative supplies and the costs involved are what matter. Wind power has come down in price dramatically and a combination of new wind and natural gas supplies and serious investment in efficiency to reduce consumption could meet all the targets at a significantly lower cost than the new nuclear on offer — even without further technological advances in energy storage. So the decision on Wylfa is no trivial matter. At one level, it would confirm that new nuclear cannot proceed without state investment. At another, it would indicate that the era of energy privatisation initiated by Lord Lawson in the 1980s is over. The next few weeks will tell us whether we are at an inflection point.
FT 8th Jan 2018 read more »
The forecasts for UK energy and carbon emissions that government released a few days back make interesting reading – not least on nuclear power. So do recent noises from the nuclear industry. Putting the two together raises an intriguing question: Could a sensible, cost-effective and fair solution to its nuclear electricity conundrum be staring ministers in the face? Let’s start with those forecasts from the Department for Business, Energy and Industrial Strategy (BEIS). In comparison with previous forecasts, this year’s downgrades expectations for new nuclear power stations. Last year, BEIS believed that the UK power system would be toting 17 gigawatts (GW) of nuclear capacity in 2035. That’s now shrunk to 14GW. It’s basically one fewer projected new power station; and if you go through the annual figures, it’s one of the near-term ones that’s dropped out of forecasts (2027 completion, to be precise). Along with this fall in nuclear expectations comes an upwards adjustment to the amount of renewable generation capacity BEIS expects to come onstream – though it still envisages the build rate falling in the late 2020s. So, the re-jig of BEIS’ projections is undoubtedly heading in a more credible direction. In particular, it’s abandoned its earlier assumption that renewable capacity wouldn’t expand at all 2028-2035, which – given the likely costs, technological advances and growing flexible demand – was literally incredible. Still, we are left with an uncomfortable situation. That 14GW of nuclear capacity would leave a big hole if it didn’t happen. Yet, as the government has tacitly acknowledged by downgrading its nuclear forecast, there’s no certainty over any of the proposed power stations. There’s no doubt that the government is sensitive to the charge that Hinkley is just too expensive. The nuclear industry, though, is sensitive to the same charge. It’s also been spooked by the offshore wind contracts awarded last year at £57.50 per MWh – less than two-thirds of the Hinkley price. Rolls-Royce’s assiduous lobbying operation on behalf of its small modular reactor proposals – which includes a speculated cost of £60/MWh – has intensified the shadow looming over big nuclear. …All of which resulted in nuclear industry chiefs promising last month that they would aim to reduce costs ‘by up to 30%’ by 2030. More recently, EDF told The Times that it expects to be able to build Sizewell C for 20-25% less than Hinkley – basically because it will already have done Hinkley – reducing the price of its electricity to about £70/MWh. Just possibly, all this is presenting ministers with a massive opportunity. So, why not simply set up a competitive auction process for fixed-price contracts for the nuclear stations that the government believes we need, just as it did with offshore wind? Hinkley aside, we have five nuclear projects bidding for four slots. The government could simply say something like: ‘Ok, we’re going to have one auction every two years from 2019 to 2025. To enter, you’ll have to have regulatory approval for your reactor and planning permission. If you win, you’ll have eight years to get your power station up and running, or incur penalties.’ Looking more broadly, there is a school of thought that says none of the nuclear stations should be built because the entire rationale for baseload power, in an age of increasingly flexible generation and consumption, is disappearing – and that on economics alone, new nuclear power will never compete with the alternatives. The government doesn’t believe this, which is why it’s still projecting a big role for nuclear going forward. Well, then: if it believes ‘firm’ power is needed, why not allow non-nuclear ‘packages’ that make up a ‘firm’ power offer to compete on equal terms? You could, for example, have a package of offshore wind farms, storage and peaking gas-fired power stations, of capacity equal to the proposed nuclear station, competing with it on a level playing field. Allow SMRs, if they ever come close to reality, to compete too.
ECIU 5th Jan 2018 read more »