We live in nuclear electric dreams

Andy Mayer

April 8, 2022

Britons rejoice, for our wise masters in Downing Street are to correct a historic injustice and bequeath to us a new generation of nuclear power stations. And just in time, the last vestiges of the 20th century fleet are to be sealed up this decade.

Or nearly. There’s going to be a bit of gap, about 13-17 years between consenting and the completion of the replacements, and half of the consents will be granted after 2025. But don’t worry. After this year’s prices shock, there will now be at least two civil servants working on North Sea licences, and maybe even a bit of fracking. So we might get some cover from gas power in the interim, and hopefully not at prices set by Russia. Although, that may be short lived. They’re also responsible for 35 per cent of the world capacity for enriched uranium, larger than their global share of either gas or oil.

So all is well. This is a wise “plan for greater energy independence”, mostly built by the French, borrowing money from the Chinese, and powered by fuel sold at Russian prices.

Nuclear power is important. It provides baseload electricity – the minimum required at any time to avoid blackouts. In the UK, this is typically 20GW of capacity (summer minimum), whereas we need a further 40GW to meet demand for the winter peak. Nuclear can provide all of it. The French system, for example, uses nuclear for both baseload and ‘peaking’ plant. But it’s not very efficient.  Particularly not compared to ‘dispatchable power’ like gas or hydroelectric storage, that can be tapped on and off as required.

In the British model we are not yet seeking more than 24GW (or 25 per cent) from nuclear by the 2040s, leaving some leeway for plant downtime and reconditioning. However, if we proceed with plans to decarbonise power, heat and transport, simultaneously, this means the mass electrification of energy currently provided directly from fossil fuels. The Adam Smith Institute issued a paper this week suggesting this would require seven times the capacity we have today. In that world, the nuclear plan is already insufficiently ambitious.

When up and running nuclear tends to be safe, reliable, low carbon, and compared to renewables uses very little land. Current technology does produce radioactive waste, and although the 20th century legacy currently costs the UK £3bn a year to manage, it can be managed safely. We are long way from ‘clean’ nuclear fusion power still, possibly viable by the 2060s-2100s, and in the interim, the Generation IV fission reactors will be a substantial improvement on current EPR and small modular reactor technology. But they will only be available in the 2050s.

So, in theory, from a technological and security of supply viewpoint, we should welcome nuclear and wish the government every success in hitting their targets. However is it that simple?

Anything that could take 20 years to build, but requires a contract now has an uncertain business model. The government estimates each new EPR plant will cost £24-63bn, and the first model, Hinkley Point C (HPC), due for completion in 2027, is costing £68-120bn, much of which covers the increased risk premium demanded by financiers to take on the long-term debt. The government, then, will treat nuclear power like other long-term infrastructure projects and will be subject to a ‘Regulated Asset Base’ model of finance, which enables developers to put projects on energy bills now as a hidden tax. They will further take a 20 per cent public stake in the next project, Sizewell C (SWC), which may hide some of the costs in general taxation. Self-evidently, these are not projects that would be built in a liberalised energy market with strong rules on state aid.

That isn’t necessarily a market failure. The problem is this: by 2040 there are likely to be alternative low carbon solutions to baseload that don’t cost anything like £63bn a pop. The nuclear bills in turn may have gone up with supplier risk greatly reduced and the government facing constant pressure to add the cost of errors to consumer bills rather than abandon the projects – a giant sunk cost fallacy challenge.

We can, for example, imagine that overstocking renewables capacity will create the potential for green hydrogen or advanced biofuel production on days of over-supply, that might then provide generation reserves for days of under-supply. We can see battery prices falling, and a breakthrough there might also provide back-up that displaces peaking gas plant in the capacity market. Which in turn may be low carbon through the deployment of carbon capture and storage. It is not remotely assured that we either need nuclear power, let alone nuclear power at a price set in 2025 for delivery in 2040.

The government, then, is ignoring market signals. EDF, the main French nuclear provider, has been on the verge of collapse throughout the last decade and taking a £200-500bn bet on our behalf, to increase our dependency on external markets, while claiming it’s to improve our security and independence. Whether this nuclear electric vision is a dream or nightmare remains to be seen, but the track record of British nuclear decisions is a far from encouraging precedent.

Author

  • Andy Mayer is Chief Operating Officer and environment, energy and infrastructure analyst at the Institute of Economic Affairs.

Written by Andy Mayer

Andy Mayer is Chief Operating Officer and environment, energy and infrastructure analyst at the Institute of Economic Affairs.

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