Only with nuclear in the mix can we quit fossil dependence

Britain’s nuclear renaissance took a vital step forward on 21st October. The first new power station to be built since Sizewell was completed in 1995. The real day to celebrate will be in ten years when low carbon electricity equivalent to 7% of the UK supply starts generating. Today, the real significance is in agreeing commercial terms. This is still historic in its way, as Hinkley Point C will be the first power station to be built within the world’s first low carbon market, through a radical new form of investment. Just as Britain paved the way with privatisation of nationalised industries in the 1980s and 1990s, the Hinkley deal represents the first achievement of the Electricity Market Reform, designed to attract non-public investment into areas the market would not in itself invest in.

Left to its own devices, the market is more likely to invest in gas power stations. Capital costs are low, and although the cost of the fuel is high and unstable, these costs can be passed on to consumers. Low carbon technologies like nuclear and renewables have the opposite character. They have high capital costs and low running costs. This is why the International Energy Agency said that EMR was essential to delivering a transition to low carbon energy.
The scale of the challenge is vast. Just what volume of energy generation will it take to decarbonise the UK? In 2010, The Royal Academy of Engineering published a report Generating the Future setting out just how much new low carbon electricity generation would be required for the UK to meet its legally binding climate targets to cut carbon by 80% by 2050.

The results were staggering. The shopping list includes 38 London Array wind farms, 10,000 2.5MW onshore wind, the Severn Barrage, 25GW of biomass, oh, and 40 new nuclear power plants. It is possible to achieve a non-nuclear scenario, for example, using the DECC energy pathfinder: http://my2050.decc.gov.uk/ but this requires big compromises, in terms of cost, economic competitiveness, lifestyle changes, or environmental impact, which may not be acceptable to the public.

As Mark Lynas details in his recent e-book Nuclear 2.0 Why Nuclear a Green Future Needs Nuclear Power, environmentalists are increasingly realising nuclear is essential. Only weeks ago, the Liberal Democrats voted to support new nuclear power. This was an historic shift, and Secretary of State for Energy and Climate Change Ed Davey led the charge. He changed his mind because of climate change. Nuclear is already Britain’s largest source of low carbon electricity. We cannot afford to take this option off the table.

When the ribbon is cut on Hinkley C if it replaces gas, then it will cut 9million tonnes of CO2 per year. If it replaces coal you can double or triple that amount. Add new reactors at five further sites adding up to 16 GW of capacity (16,000 MW) and that is substantial amounts of stable, low carbon energy. The total nuclear waste to be generated by this new build programme will be less than 10% of the existing waste from Britain’s civil and military nuclear legacy, and our capability to deal with this is far more secure if our world-leading supply base is maintained not diminished. It is not well understood that operators of new build plants will be legally required to put aside funds, from the outset to pay to clean up and manage the waste.

The strike price for Hinkley announced today (£89.50/MWH if Sizewell C is built, or £92.50/MWH without) certainly should be a welcome surprise to commentators who were confidently predicting a price as high as £140/MWH less than a year ago. Nonetheless it is important to note that this will not impact consumer bills for another ten years. Much like a fixed price mortgage, the consumer will benefit from an element of long term price stability while Hinkley will also make an important contribution to UK energy security.

This is a price for electricity in the 2020s and beyond. It offers stable prices and attracts the investment the country needs to replace its ageing power plants.

According to UKERC, all of the UK’s main electricity generation technologies have been subject to cost increases in the last five to eight years. The cheap coal being burned in plants nearing the end of their life that provides the UK with around 40% of its electricity won’t be around for much longer so talking about today’s wholesale prices is not relevant. Prediction is very difficult, especially about the future, as the saying goes. The truth is that no-one knows which way prices will go. Nonetheless it’s a fair assumption that without nuclear, dependence on imported gas will increase, with all the price volatility that entails. So DECC have reasonably concluded that a new nuclear programme could end up saving households £77 a year in today’s prices by 2026-30. DECC expect that by the time it comes online in 10 years time, Hinkley Point C will be competitive with gas generation, with costs for new Combined Cycle Gas Turbine plants (CCGTs) estimated at £89/MWh according to DECC’s ‘central scenario’ and £111/MWh using DECC’s ‘high scenario’.

The announcement today about Hinkley Point C is not only good news for nuclear, the whole low carbon sector should breathe a sigh of relief. This is the first, and in some ways most challenging test of the electricity market reform designed to provide investor confidence in all low carbon technology. If this deal had fallen over, with a negotiating price below £100/MWH then what hope would intermittent renewables have at a price upwards from £125/MWH? At 35 years, the contract length for Hinkley Point C will be twice as long as for an off shore wind project. But this is because nuclear plants will generate for at least 60 years, and potentially longer with regulatory approval. Competitiveness of the Hinkley CfD is further reinforced by the fact that the renewables strike prices will not include the cost of developing the grid to allow for a larger share of intermittent electricity generation.

Because construction risk will in no way be carried by the consumer, EDF Energy CEO Vincent de Rivaz yesterday said this creates an incentive to build on time and to budget. Until that plant is generating, investors won’t generate revenue. In addition, if there are savings made in construction time and budget, there will be a 50/50 gain share between EDF Energy (and partners) and consumers.

Still, while cost reduction is necessary for all low carbon technologies, cost is not the only driver. Along with urgent carbon reduction, and energy security, there are also major economic benefits in terms on jobs and energy efficiency to building and generating power here in the UK rather than importing fossil fuels. New infrastructure on an Olympic-scale will generate huge socio-economic benefits, tens of thousands of new jobs, and boost the UK’s industrial capability to enable the UK to compete in the global nuclear market, anticipated to be worth £1 trillion by 2030.

Whilst many wish we could leap directly to new nuclear technologies that will one day burn waste as fuel, or achieve high penetration of renewables with large scale storage, the reality is we need to work with the technology we have to start reducing emissions now and use this boost in industrial and manufacturing capability to invest in R&D, build our supply chain and drive down costs. Only then can we achieve a green future, based on solid evidence, not fanciful dreams.

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