Tony Lodge: Why the deal to secure new nuclear power must be transparent and viable

Tony Lodge is a Research Fellow at the Centre for Policy Studies.  His latest pamphlet, ‘The Atomic Clock – How the Coalition is gambling with Britain’s energy policy’  was was published by the CPS earlier this year.

Conservatives can be proud of the party’s long standing support for nuclear power.  It was the Eden Government, in 1956, that saw the Queen flick a switch - and the first nuclear-generated electricity surged into British homes from the Magnox reactor at Calder Hall (now Sellafield). This was the world’s first large scale nuclear power station. A decade later, several Magnox stations were producing power, but there still had not been enough investment in new electricity generating capacity. In the winter of 1964-65, power outages deprived homes and businesses of electricity.

The Labour Government of 1964 was committed to establishing a new national planning regime to help smooth the construction of new power stations. Sound familiar? New British designed Advanced Gas-Cooled reactors (AGRs) emerged from this process, alongside new coal plants to help appease the still huge mining workforce and its trade union strength. The average length of time to build AGRs was 10 years and it was almost 20 years before their output matched their planned capacity.   But Britain was too proud to accept that the Americans were building the best atomic plants, (Pressurised Water Reactors - PWRs) whilst we weren’t with our faltering AGRs.

By 1980, the Thatcher Government was left planning only one new reactor, at Sizewell, in Suffolk. By now the UK had accepted that the American Westinghouse PWR design was right for Sizewell. This plant did not finally come on line until 1995, fifteen years after inception and following a prolonged public inquiry.  Since the commissioning of Sizewell B in 1995, the British energy landscape has changed radically. In particular, the “dash for gas” has created a major new source of generation. A milestone was passed in 2010 when the UK became (in one quarter) over 50% dependent on gas for the generation of electricity. Today, well over a third of all the gas used in the UK is for the generation of electricity and half is now imported.  The trend will increase with the Government’s imminent new gas strategy.

Any major source of low carbon energy will initially be more costly than traditional power generation from fossil fuels. But, based on levelised costs (i.e. with any market or technology specific incentives removed), nuclear power is cheaper than the other large-scale low carbon alternatives including coal and gas with carbon capture and storage (CCS).  But nuclear power stations are very expensive to build because of the large upfront costs and the long construction period.  Confidence is essential, but at what cost? Britain’s new nuclear programme is now more than two years behind schedule. EDF Energy has already indicated it cannot build its first new UK reactor by 2017, as earlier hoped. DECC now states that it expects the first new nuclear plant in 2019 but this looks hopelessly over-optimistic.

But what price should Britain be prepared to pay for new nuclear plants? If a strike price – i.e the guaranteed price paid for electricity from the plant when completed - is anywhere near the £140 per megawatt hour (MWh) said to be required by offshore wind, we should be surprised if EDF were not inclined to line our coast with nuclear plants, as was the case in France in the 1960s, 70s and 80s.  But this is an absurdly high price and should be out of the question.  Any price close to it would rightly destroy nuclear’s low cost reputation and with it the case for new nuclear. 

After all, £140/MWh is today more than double the current market price, and DECC forecasts that electricity prices will fall over the long term as a result of electricity market reform. 
A challenge for the Government is to make the strike price negotiations as transparent as possible.   EDF has now increased the cost of each proposed reactor at Hinkley in Somerset by 40% to £14bn in total. Why? The outcome of the ’strike price’ negotiation risks saddling householders and businesses for a long time to come with further costs since the subsidy for low carbon power is to be financed by the consumer.

This is why transparency and parliamentary scrutiny will be vital.  Strike price plans mean that when the market price for electricity is below the level agreed with EDF, all UK energy consumers will be liable for subsidies to ‘top up’ the difference.

 But does nuclear need a subsidy? It can be calculated that that two 1,600MW reactors operating at 90% efficiency over a 50 year lifespan could generate £88bn in cash at an average market price of £70/MWh (which was the Government’s median projection for nuclear power last year, making it the cheapest on offer); £126bn at an average price of £100/MWh; and £163bn at £130/MWh. These are very large returns on a £14bn capital outlay, recognising the need to count in running costs, contingencies and profit.

The Government rightly wants to see new nuclear power plants by 2020.  It must now make the case and show that it has negotiated in the national interest, and not got nuclear at any price.  Anything less will make the UK’s poor atomic planning of the 60s and 70s pale into insignificance.