The UK government is short on time to replace its ageing nuclear power fleet, but will a new energy white paper be enough to bring investors back to the sector?
Hitachi’s decision to cancel its plans for the Wylfa Newydd project in Anglesey, Wales, and its Oldbury project in Gloucestershire in September 2020 was just the latest in a series of cancellations and delays to new UK plants since Sizewell B started operating.
The government hopes a much-delayed energy white paper will help to convince developers that UK nuclear plants are still worth investing in. The exit of Hitachi shows that some have already lost patience.
The UK’s nuclear power stations are ageing fast
The UK has eight operational nuclear power stations, across seven sites, providing about 20% of the country’s electricity. In four years’ time, four of those plants are set to close before any replacements have become operational.
The only new power station under construction is Hinkley Point C, which has attracted significant criticism for the involvement of China General Nuclear Power Group and its strike price.
Under a contract for difference (CfD), Hinkley Point C will receive £92.50 (in 2012 prices) for every megawatt hour of generation (MWh) it produces. According to data from sector regulator Ofgem, the wholesale price of electricity has never risen above £70/MWh in the past decade, and in June 2020 (the most recent data) it was just £28.42.
In September 2019, the latest UK offshore wind auction saw projects awarded CfDs for as low as £39.65/MWh.
World Nuclear Association (WNA) spokesperson Jonathan Cobb argues that the strike price agreed for Hinkley Point was competitive with CfDs awarded for other low-carbon technologies in 2012.
“It is also important to consider the full costs of generation, including the system costs, which aren’t included in the CfD strike price,” he adds.
“With increasing levels of intermittent renewables systems, costs will become more significant. The cost of providing sufficient back-up generation to cover the intermittency will rise. Additionally, if this back-up is provided by gas-fired generation without carbon capture and storage, then overall greenhouse gas emissions will be higher.”
Another substantial cost of nuclear power is decommissioning. In 2019, the UK government forecast that the future clean-up cost for plants already constructed in the UK will total £124bn spread across a staggering 120 years.
Despite this, and the environmental concerns related to radioactive waste, the UK government still sees nuclear energy as central to its plans to reach net-zero greenhouse emissions by 2050.
Renewable energy’s share of electricity generation in the second quarter of 2020 hit a record of 44.6%, according to government data. Without utility-scale battery storage, however, the intermittency of renewables means it is an unreliable provider of baseload power.
The fragility of UK electricity supply was shown on 14 October 2020 when the National Grid forecast “tight margins” over the following days due in part to “unusually low wind outputs”.
Waiting for the UK government’s energy white paper
The UK government approved eight sites for new nuclear plants in 2010 but only the Hinkley Point site has seen any construction.
The two reactors at Hinkley Point are being developed by France’s EDF Energy, the only foreign company to operate a nuclear power station in the UK.
The nuclear power sector has the potential to attract significant foreign direct investment into the country but that potential has yet to be fully realised.
Hitachi blamed the “increasingly severe” investment environment caused by Covid-19 for its decision to pull out of Wylfa Newydd, but in its statement it also highlighted the 20 months the project was suspended waiting for an agreed funding plan.
The CfD agreed for Hinkley Point was widely seen as overly generous and it is unlikely to be repeated. The government was rumoured to be considering a regulated asset base (RAB) model for new nuclear instead.
This could see the cost per MWh drop significantly, with developers able to raise money directly via customers’ bills. Critics argue RAB would be a blank cheque for developers to cover cost overruns, however, and sources suggest the government is now considering alternatives.
The UK government was due to publish an energy white paper in mid-2019, and still claims it will be released imminently.
Stephen Jennings, head of energy and natural resources for Europe, the Middle East and Africa at Japanese bank MUFG, describes the outlook for large-scale nuclear in the UK as “uncertain” and says significant private sector investment will be dependent on “strong revenue support signals coming from the government”.
Jennings adds: “We don’t have the energy white paper yet and revenue models for new nuclear remain very uncertain. The UK government’s issue on this is one of public sector balance sheet accounting, which post-Covid is likely to become more of a concern.”
Could the UK become an exporter of nuclear power technology?
According to the WNA, there are only 12 consolidated vendors offering technology and services across the nuclear fuel cycle:
• Candu Energy (Canada)
• China National Nuclear Corporation
• China General Nuclear Power Group
• China State Power Investment Corporation
• Framatome (France)
• GE Hitachi (US/Japan)
• Korea Electric Power Corporation (South Korea)
• Mitsubishi Heavy Industries (Japan)
• Nuclear Power Corporation of India
• Rosatom (Russia)
• Toshiba (Japan)
• Westinghouse (US).
The WNA predicts that this list could be reduced to as few as four by 2030 as the market consolidates. It also observes that the number of companies authorised to produce goods in the nuclear power supply chain has been reducing by 5% a year since 2013.
While a more limited universe of plant developers and supply companies limits the UK’s options for inward investment, it could provide opportunities for domestic companies.
Cobb of the WNA says: “For Hinkley Point C, a lot of effort has been put into developing a robust supply chain from a wide range of international, national and local firms. EDF Energy expects that about 64% of Hinkley Point C’s construction costs can be spent in the UK, building skills and expertise for the future.
“What is vital now is that, having built up that expertise, the UK presses ahead with additional nuclear build projects so that the most can be made of the national skills and capabilities that have been developed.”
The UK has been investing heavily in research and development in the nuclear sector in recent years, and UK company Rolls-Royce has developed a small modular reactor (SMR) design that sources say is ready to implement if a viable funding model can be agreed.
SMRs are smaller, quicker to build and supposedly safer than larger plants. Influential UK government advisor Dominic Cummings is known to be a champion of the technology.
Initial projects will prove extremely costly to build, however, until economies of scale can be achieved. Finding sites to build them could also prove challenging.
Jennings of MUFG says: “Because the nuclear site licensing process can take so long, and with all the existing sites having largely been sold off to developers of larger reactors, the sites would need to change hands or developers would need to change technologies in order to enable a roll-out of the SMR sites. Neither option is particularly easy.”
The UK government would no doubt love to perfect a nuclear technology it could both use domestically to replace ageing power stations, and also export around the world post-Brexit. However, that is much easier said than done.
Source: Investment Monitor