Dr Bridget Woodman, Energy Policy Group – 19th March 2013.

As decision day looms on the level of EDF’s strike price for new nuclear output, it’s worth reflecting for a moment on what this process says for the state of energy policy decision making in the UK.

The debate about new nuclear build has been protracted and complex.  Back in 2003, nuclear power was ruled out as an economically unattractive option, but by 2007, this position had reversed, with new nuclear build not only an economically viable option, but also the potential saviour in the face of both climate change and a prospective ‘energy gap’ following the closure of some coal fired power stations in the next few years.  A blip in progress when the decision to support new nuclear build was challenged in the courts by Greenpeace was dealt with by another consultation, and then the final policy was set out in 2008.

Back then, the plan was to start construction in 2013, and to have a new reactor up and running by around 2018.  Politicians began changing various rules to ensure that the progress of any future application was as smooth as possible, and that the various risks intrinsically associated with new nuclear projects was either managed or removed.  Here are the highlights for the record:

• Changing planning rules and issuing a Nuclear National Policy Statement to limit the scope of any inquiry into the suitability of particular proposals for a new nuclear statement
• Streamlining the safety licensing procedures for reactor designs
• ‘Pre-justifying’ reactor designs to eliminate the risk of last minute questions about the costs and benefits of creating and discharging nuclear waste from the operation of new stations
• Capping the amount of money that nuclear operators would have to pay in future to deal with the wastes created by new stations.  Any cost overruns would be picked up by taxpayers

These measures are designed to reduce the financial and regulatory risks faced by investors during the planning, construction and clean up phases of a nuclear power station by limiting any ongoing scrutiny of the nuclear power plants.  Although not directly subsidies, the measures have a value in that by reducing risk, investors may be able to borrow money more cheaply.  But the jewels in the crown of nuclear support mechanisms are directed at the operational phase of the reactors.  These do have a direct value and a direct cost for consumers.

The key measure is the guarantee of a fixed price for nuclear output, known as a Contract for Difference (CfD).  Currently it looks like a nuclear operator would get this guarantee for around 40 years, thereby removing the concerns that investors would feel about having to operate in a competitive market. 

This in addition to other, less visible measures.  For example, at the moment, the largest station on the grid (Sizewell B) requires an equal amount of power to be kept as ‘operating reserve’, or back up power in case of an unforeseen failure at Sizewell.  If new nuclear stations are built as planned, the amount of operating reserve required will rise from 1000MW to 1320MW, and overall costs of providing reserve and other back up measures could rise from £160 – £319m/year.  This is clearly the result of specific plans to build large, inflexible nuclear stations.  However, instead of charging the nuclear operators for the additional system costs they impose, the National Grid decided to spread the costs of new, larger reactors across all generators connected to the transmission grid, on the grounds that targeting those responsible could delay the construction of new reactors.

So the Government has carefully  built a supportive environment for the nuclear industry to mitigate the financial and regulatory risks associated with the industry, and so encourage investment.  But the rationale on which this nuclear support edifice is built is crumbling rapidly.

In 2008, DECC projected nuclear generating costs at between £31 and £44/MWh, This estimate allowed the Government and industry to portray the nuclear option as sensible in the face of more expensive renewable technologies.   It now appears that EDF is demanding a fixed price CfD for its output of around £95 – £100/MWh for 40 years– more than double the original DECC estimate of nuclear costs.  This would provide EDF – and its majority shareholder the French Government – with a 10% rate of return on its investment.  The escalation in costs is hardly surprising – similar reactors being built in Finland and France are both wildly over their original budgets and behind schedule.  What is surprising though is the lack of attention this has had, either from politicians or the media at a time when so much attention is focused on consumers’ energy bills.

The carefully constructed nuclear waste management plan is also collapsing, with Cumbria Council refusing to give the development of a nuclear dump the go-ahead a few weeks ago.  This once again leaves the UK’s nuclear waste policy in turmoil, with no prospective solution in sight.  While this could be spun as a decision primarily relating to the UK’s existing nuclear waste stockpile, it also undermines both the Government’s decision to cap the industry’s costs for dealing with new wastes, and its careful repositioning as a ‘clean’ energy option.

And the argument that nuclear power could provide a comparatively low cost way of meeting future carbon targets is also being eroded by the rapid cost reductions evident in the renewables sector.  The scale of decline in solar PV costs, with a resulting reduction in subsidy levels for the technology has been widely documented.  The costs of larger scale renewable technologies are also declining rapidly as the technologies become more refined and reliable.  It’s ironic then that a nuclear CfD for £95 – £100/MWh would be both higher than that offered for most other renewable technologies, and for a much longer period – renewables will only receive guaranteed prices for 20, rather than 40 years.  The inequality in the treatment of renewables and nuclear power has received some attention, but again there is remarkably little examination of whether there’s any rational justification of it.

Taken individually, it might be excusable to dismiss these issues as undesirable but not necessarily significant.  Taken together though, they highlight an important issue – how long is it before policy makers take a step back from their pampering of the nuclear industry and take a long hard look at the rationale for the support they’re giving them?  At what stage might they decide that enough is enough – or are they so far down the road of propping up the industry that the stakes are too high for a sensible reassessment?  We’ve been down the nuclear cost escalation/nuclear waste nightmare route before, and we’re still paying for it.  Unfortunately though, policy makers seem not to have learnt from the past, and are about to replicate the same mistakes, leaving us once again to pick up the bill.

Posted by: rhoggett

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