Opinion Jonathan Ford: Britain needs new nuclear, and the government should fund it. Future prosperity depends on securing reliable zero carbon power at the lowest cost. If more nuclear is required, as seems certain, if only as an insurance policy, a big question concerns the funding model. The UK’s first new nuclear project — at Hinkley Point in Somerset — is a by-word for extravagance. To get the private-sector owners to take on the risk of a £22bn “first of a kind” project, a strike price worth some £110 per megawatt hour at current prices was guaranteed and indexed for 35 years. (Pre the coronavirus slump, power prices were between £40-£50/MWh). Getting that down is vital if the economy is not to be saddled with uneconomic energy. True, that means lower construction costs, but the more pressing need is actually to reduce nuclear’s cost of capital. While construction accounts for about 20 per cent of the total cost of a plant, capital amounts to close to half. EDF, the French utility, has come up with an answer. It proposes a mechanism that would impose a form of tax on electricity consumers, requiring them to pay up front for electricity they had yet to receive. Known politely as the “regulated asset base (RAB) model”, this allows the project to avoid rolling up interest during the long construction phase, cutting the amount of compounded debt to be serviced and paid off during the life of the asset. Applied to EDF’s proposed project at Sizewell, an identical follow-on project to Hinkley for which the planning application was announced last week, that could reduce the 9.3 per cent capital cost of Hinkley to something closer to 5 or 6 per cent. Critics have raised concerns about this structure, such as whether it saddles consumers with risks they cannot themselves control. But a more pertinent question is whether it is really a pointless halfway house. Taxpayers and electricity consumers are essentially one and the same people. So why not substitute the complexities of the RAB with direct government finance? After all, the UK government’s cost of 30-year money is less than 1 per cent.
FT 1st June 2020 read more »
Why are we leaving a major existing source of low-carbon power out of green stimulus discussions, as the European Union appeared to do last week? Nuclear energy is hugely polarizing, geopolitically sensitive and not without risk. It’s also a reliable source of clean power that can displace fossil fuels and effectively work in tandem with renewable energy. True, new plants have proven slow and costly. By managing projects (a lot) better and tinkering with the models less, that can change. We can certainly keep existing reactors alive reasonably cheaply. Small, modular plants, already in the pipeline, may make a difference, too. Leaving nuclear off the agenda in the debate on a post-pandemic, carbon-light recovery is a mistake we will rue.
Financial Post 31st May 2020 read more »
Bloomberg 31st May 2020 read more »