Wednesday, 23 October 2013

The high price to pay for UK's nuclear renaissance

WITH 60% of the UK’s 100GW of electricity capacity due to come off line in the next decade the Government is anxiously pressing for new capacity to fill the gap.

The Energy Bill sets in place subsidies to support renewables technologies, such as offshore and onshore wind, to help with the transition from fossil fuels to a low carbon network.

But at this point in the game there is no hope of renewable technologies filling the looming energy gap – with significant breakthroughs in energy storage still some way off.

Hence the Government’s delight at securing the deal with EDF for a new nuclear power station at Hinkley Point, Somerset, which will generate 7% of the UK’s capacity when fully operational by 2020.

Nuclear power is a low carbon energy source and unlike intermittent renewables, such as solar and wind, is a reliable base-load option.

It therefore ticks two of the three boxes of what many in the industry like to call the ‘energy trilemma’ - it supports the UK’s energy security and is low carbon.

Whether it ticks the third box of affordability is open to conjecture.

The strike price deal of £92.50 per MW/h (megawatt hour) for 35 years is far below that of offshore wind at £155 per MW/h and if EDF embarks on a second reactor in Suffolk this price will fall to below £90 per MW/h.

But with wholesale market electricity prices between £40 and £50 per MW/h it will cost the hard-pressed bill payer in the long-run.

The Government flimsily argues that by 2030 the deal will save bill payers money, but this is based on assumptions that energy bills will continue to rise as we move from fossil fuels to low carbon power sources.

In fact by arguing the deal will save bill payers in the long term the energy department is effectively saying it expects energy bills to move north towards the £90 per MW/h EDF strike price by 2030 – which is a sobering thought for all.

While EDF has said it will put money to one side to pay for decommissioning and waste disposal, cost overruns are a feature of the nuclear industry.

Earlier this year Hinkley was estimated to cost £14 billion, but this week’s announcement has seen that already rise to £16 billion.

EDF and its construction partner fellow French Government owned company Areva are currently involved in two new nuclear builds in France and Finland, which are both behind schedule and costing more than anticipated.

At Flamanville in France the cost of a single European Pressurised Reactor (EPR) has tripled after four years delay to 8.5 billion euros.

The Finnish project using the same EPR is seven years late.

The UK Government has pledged to provide a loan guarantee for £10 billion of the Hinkley construction costs, exposing the taxpayer to potential liabilities should the project stall or fail.

With other consortia looking to build new nuclear plants in the UK the Government will hope this week’s announcement will re-start an industry which has lay dormant in the UK for a generation.

It is hoping resulting economies of scale may force prices down - but at a time of rising energy prices it is unlikely a UK nuclear renaissance will come cheaply for hard-pressed domestic and commercial bill-payers.


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