At last, after months of negotiation, the UK government has given the go-ahead in principle to EDF (with financial backing from others, including two Chinese companies) to build a 1600MW nuclear plant on the existing Hinkley Point site in Somerset. The key factor was for the two sides to agree a ‘strike price’ for the electricity to be generated when Hinkley C finally comes on stream in the 2020s.
This strike price – set at £92.50 per MWh – is the guaranteed price the operator will receive. If it is above the then wholesale price for electricity, the consortium will receive the difference. If the wholesale price is higher, then the government (and consumers) will benefit. This has been widely reported, for example by the BBC: UK nuclear power plant gets go-ahead.
In this report, Dr Paul Dorfman of the Energy Institute at University College London is quoted as saying "It is essentially a subsidy of between what we calculate to be £800m to £1bn a year that the UK taxpayer and energy consumer will be putting into the deep pockets of Chinese and French corporations, which are essentially their governments." Ignoring the dig at foreign investors, it is worth putting this figure in context.
The planned plant – which still has to get over a couple more hurdles before it can be considered definite – will consist of two pressurised water reactors, each rated at 1600MW. According to reports, this would provide about 7% of UK electricity demand. The only larger generator in the country would be Drax (fired by coal and, increasingly, wood chips imported from America) at a little under 4000MW. It is also comparable to the potential output of the proposed Severn barrage system.
If UK consumers do end up paying a billion pounds a year extra once Hinkley C comes on stream, how does that fit into the overall picture? The first thing to note is that the strike price is currently lower than the 2014 prices for onshore wind (£100 per MWh), offshore wind (£155/MWh), biomass (£105/MWh) or solar (£125/MWh), although higher than the expected £55/MWh for electricity generated from coal or gas.
It is reckoned by some that the cost of both wind and solar will be lower still by the time Hinkley C finally comes on stream in about ten years time. For photovoltaics this will almost certainly be the case, as supply costs have fallen significantly in recent years (partly because so many are now made in China). It is also a relatively immature technology and further advances in efficiency and manufacturing can be expected. Wind turbine technology, however, is quite mature and it seems unlikely that further major cost reductions will be made. Site preparation and turbine erection is also likely to form a larger part of the overall cost of wind, and these costs are likely to rise rather than decrease.
Whatever the current and future costs of installation, the feed-in tariffs set for both wind and solar are a clear indication that these are not sustainable industries without public or consumer subsidy. The health of the sector is entirely at the whim of government policy and has suffered significantly in recent years, with share prices being highly volatile and a number of bankruptcies occurring as public support has been reduced. The fact is that the cost of either wind or solar energy has a number of components in addition to the price of installation and the power generated: integration and backup costs, plus constraint payments all have to be factored in to the total cost.
If we accept the £1 billion annual figure for the excess cost of Hinkley C over conventional generation, then installing ten such stations could in theory supply 70% of the UK’s electricity for an additional payment of £7bn. Compare this with the situation in Germany where, as the FT reported (Soaring renewable energy costs set to stoke German energy debate), feed-in tariffs for renewable energy amount to €20.4bn this year (and are set to rise to €23.6bn in 2014), while renewables only contributed 23% of total generation last year. This is planned to increase to 35% by 2020 and 80% by 2050. By the end of the current decade, German consumers are likely to be paying eye-wateringly high prices.
In the UK, renewables contributed about 11% of total electricity in 2012 and a record of over 15% in the second quarter of 2013 (DECC statistics). However, about half of this was either from biomass burning or hydro electricity, so not directly comparable to the German situation. Nevertheless, DECC figures quoted by the BBC (Q&A: green taxes) show that ‘green energy’ measures come to £112, or 9% of the average household energy bill. With about 26.4 million households, the total cost comes to nearly £3bn annually.
It is very difficult to compare like with like, as the UK green levies are partly to fund energy efficiency measures. But, given that the cost of wind and solar does not include either additional transmission costs or backup generation, the £3bn estimate doesn’t sound unreasonable as the extra cost burden it creates. On this reckoning, Hinkley C looks, if not a bargain, then certainly a good buy. We also need only look to Germany to see the likely consequences of a large expansion of wind and solar farms. This is skewed by the enormous number of solar panels in the country – one of the most expensive ways to reduce emissions – but we know that imported wood chips are not likely to get any less expensive and that the folly of unilaterally adopting a carbon price floor will push the overall costs of UK energy artificially higher.
Lastly, I mentioned the proposed Severn barrage, currently in limbo but last costed at up to £30bn, double that of Hinkley C. Although there is no one firm proposal, an output of about 5% of UK electricity consumption has been quoted. There would, of course, be additional costs because of the intermittency, but at least this would be predictable. Once again, though, the proposed Hinkley C looks like a very wise investment.
Might this at last signal the rebirth of the nuclear power sector in the UK? Certainly it would make sense. Building costs are likely to reduce somewhat as designs are bedded in, so the current proposal probably represents a high point on the cost curve. It may even be that, as some have suggested, the future lies with small, modular reactors which could be delivered ex-factory in a standardised form. Possibly fast breeder reactors would be resurrected to deal with plutonium stockpiles, and maybe there would be renewed interest in the potential of thorium. All this is conjecture but, if we do finally see a new plant constructed at Hinkley Point over the next decade, it could all become real.
Martin Livermore
The Scientific Alliance
St John’s Innovation Centre
Cowley Road
Cambridge CB4 0WS
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