March 2, 2017
Getting Britain’s nuclear renaissance underway has been longer and more painful than expected. It remains strategically necessary and has powerful backing, but it still faces significant challenges.
The trailblazer for the renaissance of ‘new nuclear’ in the UK, Hinkley Point C, prompted successive Governments to change planning rules, make policy declarations of strategic need and ultimately anchored the case for a new Energy Act. It has taken the moving of legislative mountains and seven and half years of resilience and problem solving to get Hinkley Point C from being named as a site for a new nuclear station to the final investment decision which finally came in September last year.
This project is the first of six new plants currently planned for the UK representing some 16GW of low carbon baseload power, well in excess of what’s needed to meet the demand of all 27m UK households. The determination of successive Labour, Coalition and then Conservative Governments to create the environment for new nuclear to get underway and the willingness of French, Chinese and Japanese Governments to allow their national champions in the industry to become partners, underlines the strategic significance of new nuclear, globally.
However, even as the first project gets properly underway, the challenges are mounting up for those that follow. In the context of the falling cost of renewable generation, significant political uncertainty from Brexit and greater nationalism, making the case for new nuclear on a purely commercial basis is getting even tougher.
Facing a considerable ‘energy gap’ through to 2030, the strategic need remains acute for the UK and its international partners. So Government(s) and industry need to find a way to make it these projects commercially viable and efficient if delivery of these plants is still going to happen in a timescale that matches when they are really needed.
This winter’s improvement in UK supply margin for electricity was largely underpinned by National Grid supporting the continued operation of old coal fired plants that would otherwise have closed. The Government has however declared the intention to eliminate all coal stations by 2025. By that time the majority of existing nuclear stations will also be on their way out too. Without the secure baseload power from the planned new nuclear plants, security of supply questions could re-emerge, driven by both the intermittency of renewables that don’t generate when the wind isn’t blowing or sun isn’t shining and demand growth from the accelerating electrification of heating and transport. The short term cover provided by rapid rises in large scale battery storage capacity helps, but does not eliminate this structural need for new low carbon baseload.
Nuclear is one of the industries singled out in the Government’s new Industrial Strategy Green Paper published last month, as a lynchpin for developing the UK economy. The planned new nuclear projects represent many billions of capital investment, a large chunk of which will go to UK companies and will underpin tens of thousands of skilled jobs, creating a European centre of excellence. Moreover, rebuilding such industrial strength with the collaboration of three major Governments from outside the EU is also particularly attractive for the UK in the face of Brexit.
Even with the huge increases we have seen in renewable energy capacity, if the UK is to meet its legally-binding carbon targets then the country still requires a significant amount of new low carbon generation capacity to enable fuel switching from petrol/diesel to electricity for transport and from gas used in heating and industrial processes.
The low cost of gas in world markets and falling price of renewables, especially offshore wind, will make it increasingly difficult to achieve a power price that would support the long term, high capital investment required for new nuclear.
The Hinkley point CFD strike price at £92.50 per MWh, was well below the price of UK offshore wind at the time it was agreed. Yet in the next UK Contract for Difference (CfD) round, offshore wind projects are expected to bid at around £70-£85, still much higher than the cheapest projects in Denmark and the Netherlands, which implies prices could fall even further.
In this context the quiet drumbeat of questions over whether new nuclear is worth the money, whether there are cheaper alternatives and whether it can be delivered in time to meet our needs are becoming more persistent. Over time, if these are not balanced by counter argument this could erode the broad political support that has brought the new nuclear programme this far.
The recent EU Amendment Bill (Brexit Bill) tabled by the UK Government made explicit plans for the UK to withdraw from Euratom, the European treaty that facilitates international cooperation on civil nuclear power between EU member states and other nations with civil nuclear expertise.
Should this go ahead, it throws up the need for a suite of new bilateral treaties between the UK and EU as well as for the individual countries whose companies are key to the UK supply chain including the US, Japan and China.
The forthcoming May 2017 French Presidential election could also complicate the environment for new nuclear in the UK due to the relative weakness of the EDF balance sheet.
The EDF investment programme which includes its participation in Hinkley Point C, Sizewell C and Bradwell B depends on the company having access to enough capital. The UK project investment ultimately depends on the same pot that is needed for the huge investment EDF needs to make in extending the lives of the French nuclear plants.
EDF may need support from the French Government, its majority shareholder to enable the investment. It will get this either directly or indirectly. However, a new French Government could very easily be a more inward looking one, even if the far-right Front National doesn’t win forthcoming elections and we see a more centre ground administration formed.
This inward focus could result in France’s appetite for international projects waning, complicating the financing of Sizewell C and Bradwell B.
Toshiba’s financial woes, fuelled by its own nuclear industry experience throws up a cloud of uncertainty over the road to completion for the 3 reactors planned by Nugen at Moorside. This uncertainty could be extended if there are US government questions over who might buy Toshiba’s Westinghouse subsidiary, which holds a large part of the US intellectual property in nuclear technology.
As we can already see, even with backing from so many governments and major corporations, delivering these projects remains a huge challenge politically, financially and technically.
Our analysis supports the view that the strategic need for new nuclear remains compelling both for the UK itself and as a global showcase for the technology providers and industrial leaders of the partner countries involved. But we are in a context where the industry itself, Governments and the major players in the supply chain need to urgently step up, re-make the arguments and take a fresh look at how to overcome the political and financial challenges of making new nuclear a reality.
It also begs the question of Government: is there a cost effective solution to enabling future new nuclear that does not include some direct investment by the state(s)?