Nuclear: Time for open competition

The forecasts for UK energy and carbon emissions that government released a few days back make interesting reading – not least on nuclear power.

So do recent noises from the nuclear industry.

Putting the two together raises an intriguing question: Could a sensible, cost-effective and fair solution to its nuclear electricity conundrum be staring ministers in the face?

Powering down

Let’s start with those forecasts from the Department for Business, Energy and Industrial Strategy (BEIS). In comparison with previous forecasts, this year’s downgrades expectations for new nuclear power stations.

Last year, BEIS believed that the UK power system would be toting 17 gigawatts (GW) of nuclear capacity in 2035.

That’s now shrunk to 14GW. It’s basically one fewer projected new power station; and if you go through the annual figures, it’s one of the near-term ones that’s dropped out of forecasts (2027 completion, to be precise).

Along with this fall in nuclear expectations comes an upwards adjustment to the amount of renewable generation capacity BEIS expects to come onstream - though it still envisages the build rate falling in the late 2020s.

The reason that’s traditionally given for forecasting a slowdown in renewable build is that a new generation of nuclear reactors will come along that will be cheaper, effectively undercutting renewables.

Out in the real world… how’s that looking?

Divergent paths

As we showed in a 2015 report, the estimated cost of building new nuclear power stations is on an upwards trajectory – the costs of renewables on a downwards one.

Since then, the picture has become even starker, with EDF revising upwards its cost projections for Hinkley Point C. Meanwhile, offshore wind power auctions are producing spectacularly low winning bids – and our recent analysis showed that new wind farms onshore would not now require subsidies at all.

So, the re-jig of BEIS’ projections is undoubtedly heading in a more credible direction. In particular, it’s abandoned its earlier assumption that renewable capacity wouldn’t expand at all 2028-2035, which – given the likely costs, technological advances and growing flexible demand – was literally incredible.

Nuclear hole

Still, we are left with an uncomfortable situation.

That 14GW of nuclear capacity would leave a big hole if it didn’t happen.

Yet, as the government has tacitly acknowledged by downgrading its nuclear forecast, there's no certainty over any of the proposed power stations.

If we assume that Hinkley C is now happening and go through the rest of the candidates on a plant-by-plant basis:

• Hitachi says it may stop preparatory work on Wylfa (Anglesey) this year if it doesn’t get a support package from government – which would scupper its Oldbury (Gloucestershire) plans too
• South Korea’s Kepco is in talks to buy the Moorside project in Cumbria from financially troubled Toshiba. If it does buy, Tepco is likely to use its own reactors, which haven’t even entered the UK’s regulatory approval process yet
• Sizewell C (Essex) should be a near-clone of Hinkley C – which may be a source of optimism or pessimism, depending on your view of Hinkley - and a minimum condition for Sizewell happening is that Hinkley has to succeed
• Bradwell (Essex) hinges on continuing Chinese interest in nuclear power and, in particular, in light water reactors, which is not guaranteed – and on the Chinese reactor gaining UK regulatory approval.

Cost sensitivities

There’s no doubt that the government is sensitive to the charge that Hinkley is just too expensive.

The nuclear industry, though, is sensitive to the same charge. It’s also been spooked by the offshore wind contracts awarded last year at £57.50 per MWh – less than two-thirds of the Hinkley price. Rolls-Royce’s assiduous lobbying operation on behalf of its small modular reactor proposals – which includes a speculated cost of £60/MWh – has intensified the shadow looming over big nuclear.

…All of which resulted in nuclear industry chiefs promising last month that they would aim to reduce costs ‘by up to 30%’ by 2030. More recently, EDF told The Times that it expects to be able to build Sizewell C for 20-25% less than Hinkley – basically because it will already have done Hinkley – reducing the price of its electricity to about £70/MWh.

Time for auction?

Just possibly, all this is presenting ministers with a massive opportunity.

The government is, as we know, keen on competition when it comes to offshore wind power. And here, competition has proven its worth, being widely cited as the main reason why costs have tumbled.