UK nuclear program - not dead yet as government tries to save face
The Times reported on July 15, that, according to “well placed industry sources”, EDF Energy wants a subsidy of £2.8 billion (US$3.6bn or 3.5bn euro) a year for the next 25 years to build two new nuclear reactors at Hinkley Point in Somerset, England at a cost of £14 billion. The French, mostly state-owned company, will only build the two European Pressurised Water Reactors (EPRs) with huge subsidies, paid for through fixed levies on electricity bills.
In May the UK Government published a Draft Energy Bill see (Nuclear Monitor 750, June 1) which details plans for so-called Electricity Market Reform. The proposals include the introduction of a complicated support mechanism for low carbon electricity called “Contract for Difference” (CfD). Basically if the market price for electricity falls below a guaranteed “strike price” the nuclear or renewable energy operator would be paid the difference, but would also have to pay money back if the electricity price goes above the strike price. The Government doesn’t expect the Energy Bill to be passed into legislation until towards the end of next year, and strike price rates won’t be finalized until then. However, under the terms of the draft Bill, the government can issue a likely strike price in advance of formalizing the rate and introducing CfD in 2014.
EDF Energy and its junior partner Centrica want to make their final investment decision on Hinkley before the end of 2012. So talks have begun between the Department of Energy and Climate Change (DECC) and the two companies to provide them with some firmer guarantees in order to make sure plans for Hinkley Point go ahead. With RWE and E.ON having recently dropped their UK nuclear plans, EDF Energy has the Government over a barrel, and will no doubt be telling DECC what strike price it wants before going ahead – in effect writing its own subsidy cheque from the electricity consumer.
According to The Times, EDF says it needs about £165 per megawatt hour (£/MWh), almost four times the existing wholesale price of electricity, if it is to go ahead. This works out at a subsidy of £68 billion over 25 years, or an average of about £50 extra a year on every household bill.
Let’s not forget that the Coalition Agreement between the Tories and Liberal Democrats pledged to not subsidize nuclear power.(1) Despite this, the Secretary of State for Energy and Climate Change, Liberal Democrat Ed Davey, now seems to be prepared to agree a high strike price with the nuclear industry, whilst pretending the Government is not planning to subsidize dangerous new reactors at all.
The Times says the Government has warned EDF Energy, and its junior partner Centrica, that nuclear power subsidies must be lower than offshore wind power, but EDF is arguing that the giant new offshore wind projects planned for the North Sea will cost £180/MWh, making nuclear slightly cheaper. In fact currently under the UK Renewables Obligation, offshore windfarms now being installed are being paid around £135 per MWh. According to senior lecturer on Energy Policy at Birmingham University, David Toke, EDF has been forced to come clean on nuclear costs, so now it is making dubious claims about offshore wind.(2) A Government and Industry taskforce set up to reduce offshore wind costs says offshore wind costs can be reduced to £100/MWh by 2020.(3)
Ed Davey says “nuclear will not receive a higher price than comparable gene-ration technologies whether they be renewables or indeed gas generation once its emissions have been abated by carbon capture and storage.”(4) If it is more expensive to get electricity from new nuclear power stations than offshore wind then the government’s commitment to nuclear will become dif-ficult to maintain – we might as well just build more offshore wind farms.(5)
Toke asks “will the British Treasury sign off on this plan to increase average British electricity prices by 8 per cent for 25 years to produce 6 per cent of UK electricity from nuclear power?” The Government claims that energy bills will have to go up whatever we do. Its answer to this was supposed to be The Green Deal. But this now looks incre-asingly unlikely to deliver the savings to consumers promised. The plan is to offer Green Deal loans of up to £10,000 to help consumers insulate their homes and reduce fuel bills, but the interest charged will be at the usual rate of around 7.5%. So consumers will have to spend £22,000 to pay the loan back over 25 years requiring households to deliver energyefficiency savings of £900 a year to cover the cost of annual loan repayments.(6)
In contrast, in Germany, where nuclear power is being phased out by 2022, loans at very low interest rates of 1-2%, have helped insulate over 2m homes, employing 200,000 people a year in the process, and German homeowners can borrow up to €75,000 to give them a very cosy and efficient home indeed. (7)
Greenpeace and WWF wrote to The Times pointing out that the costs of nu-clear power are going up not down. The EPRs at Flamanville and Olkiluoto are now £2.7 billion and £2.6 billion over-budget respectively. The huge subsidy of £2.8 billion per year being sought for two reactors at Hinkley was in stark contrast to another fight within Whitehall over levels of support for onshore wind power with the Treasury pushing for a reduction in support for wind power that would save less than £20 million per year. (8) (The Treasury lost the battle, but only after DECC made concessions on gas).
EDF denied that it was negotiating for a strike price of £165/MWh. It said it expects to reach a transparent agreement with the Government that is fair and balanced. It will show that nuclear is affordable and cost-competitive. (9) The Nuclear Industry Association (NIA) said “if it were true, the figure of £165/MWH would make new nuclear virtually untenable. Fortunately, it is not true. Ra-ther, it is spectacular speculation.” (10) But NIA does not speculate on what the real price might be.
The cost of the EPR being built at Flamanville, has already doubled to €6 billion (about £4.5 billion) from €3 billion and the project is four years behind schedule. Flamanville-3 is the reference design for the UK EPR. At £5 billion, Ian Jackson of Chatham House estimates that EDF would need £91.50/MWh just to break even on a Hinkley Point reac-tor. In addition to breaking even, EDF is expecting to earn a return on its invest-ment which would bump the final strike price up to about £148/MWh. Other analysts, notably Peter Atherton of Ci-tibank, have publicly projected a strike price of between £150 and £200/MWh.(11) The Financial Times says a person close to the negotiations on the level of government support energy companies should receive reckons that EDF Energy and Centrica will need a price of at least £100/MWh – more than double the present wholesale power price of about £41/MWh – to justify the huge investment needed in new nuclear plants. He said the upper limit of any such support would be about £130-£140/MWh – the cost of electricity generated by offshore wind farms. “If you can’t do [nuclear] for that price, then you might as well build more wind farms”. (12)
David Toke says the Government could hardly set the strike price any higher than £100/MWh because this is the figure the Treasury wants offshore wind power to come down to. This would be a soft landing for a policy retreat. The Government may say that £100/MWh is profitable for nuclear power, but it is unlikely to lead to any being built. Lots of rumors, hopeful stories, yes, because the British Government (and the nuclear industry) does not want to admit that nuclear power is a dead duck.(13)
The latest news is that the chief execu-tive of General Electric, has described nuclear power as so expensive com-pared with other forms of energy that it has become “really hard” to justify. (14) And now EDF says it is considering looking for more partners for its UK nuclear projects to help it share costs and limit its debt burden – an admission perhaps that French state owned industry is no longer able to afford the huge nuclear costs on its own.(15)
(1) Spinwatch, 22 May 2012 www.spinwatch.org/-articles-by-ca-tegory-mainmenu-8/67-nuclear/5501-when...
(2) David Toke’s Green Energy Blog, 16 July 2012 http://realfeed-intariffs.blogs-pot.co.uk/2012/07/its-official-nuclear-p...
(3) Offshore Wind Cost Reduction Task-force Report, June 2012 www.bwea. com/pdf/publications/Offshore_Task_ Force_Report.pdf
(4) Liberal Democrat Voice, 20 April 2012 www.libdemvoice.org/there-will-be-no-public-subsidy-for-nu-clear-28150.h...
(5) Left Foot Forward, 18 July 2012 www.leftfootforward.org/2012/07/lea-ked-report-nuclear-energy-ed-davey/
(6) Business Green, 17 July 2012 www. businessgreen.com/bg/news/2191949/exclusive-which-warns-of-green-deal-s-devastating-impact-on-efficiency-efforts (7) Guardian, 24 May 2012 www. guardian.co.uk/environment/damian-carrington-blog/2012/may/24/green-investment-bank-energy-efficiency
(8) The Times, 18 July 2012 www. thetimes.co.uk/tto/opinion/letters/arti-cle3478465.ece
(9) The Times, 19 July 2012 www. thetimes.co.uk/tto/opinion/letters/arti-cle3479871.ece
(10)NIA Blog, 18 July 2012 http://uknu-clear.wordpress.com/2012/07/18/lies-damned-lies-and-speculat...
(11) i-Nuclear, 19 July 2012 www.i-nu-clear.com/2012/07/19/edf-says-repor-ted-strike-price-of-165mwh-...
(12) Financial Times, 23 July 2012 www. ft.com/cms/s/0/3dda6692-d29d-11e1- 8700-00144feabdc0.html
(13) David Toke’s Blog, 24 July 2012 http://realfeed-intariffs.blogspot.
(14) FT, 30 July 2012 www.ft.com/cms/s/60189878-d982-11e1-8529- 00144feab49a,Authorised=false.html
(15) Reuters, 31 July 2012 www.reuters. com/article/2012/07/31/edf-results-idUSL6E8IV2LX20120731
Contact: Pete Roche