Today we have the announcement by DECC that EdF will construct the first of the new generation of nuclear plants in the UK. Should we welcome this decision?
The contract for this project will provide an electricity price of £92.50/MWh linked to inflation. By comparison the strike price for onshore wind is at £100/MWh. This makes nuclear look cost effective. However the devil is in the detail.
Ed Davey has spoken publicly about the LibDem position that there will be no public support for nuclear. That statement was subsequently modified to read "unless similar support is provided to other types of low-carbon generation."
When we look further into the "Notes to editors" on the official DECC press release we find a great variety of wriggle room within the contract. Firstly the contract is for a period of 35 years. The proposed contracts for difference for renewable energy are for a period of 15 years. This is not "similar support".
The notes also refer to the possibility of revising the strike price: "Arrangements whereby the Strike Price could be adjusted, upwards or downwards, in relation to operational and certain other costs (including balancing and transmission charges and business rates) at certain fixed points, and in relation to certain future changes in law (including in respect of specific nuclear taxes, and uranium and generation taxes)."
Again there is no similar support for renewable energy.
We also read "Protection would be provided for any increases in nuclear insurance costs as a result of withdrawal of HMG (UK Government)cover or in certain circumstances where market cover in the nuclear insurance market is no longer available, with compensation limited to the cost of additional capital required to self-insure."
This one is pretty astounding - the UK government is providing insurance - that is a real cost to the taxpayer and while this is not reflected in the strike price it is a huge public subsidy. A study by Versicherungsforen Leipzig GmbH estimated the maximum cost of a nuclear disaster at £5.2 trillion. Calculating a premium on this event is very difficult. Effectively the UK government is providing an additional subsidy of between £100/MWh and £2,000/MWh depending on the probability of an event and the timescale. The Versicherungsforen Leipzig report concludes that nuclear disasters are not insurable.
Furthermore as we have seen at the Fukushima Daiichi plant disaster the Japanese government had to step in to fund the recovery operation. Clean up and decommissioning is likely to cost up to £200 billion. No commercial insurer can possibly insure a nuclear plant. Again, this a public subsidy and is not at all similar to the support given for a renewable energy power station.
The investors also seem to be protected from "political risk". The notes include provision for "Compensation to the Hinkley Point C investors for their expected equity return would be payable in the event of a Government directed shut down of Hinkley Point C other than for reasons of health, safety, security, environmental, transport or safeguards concerns. The arrangements include the right to transfer to government, and for government to call for the transfer to it of, the project company which owns Hinkley Point C in the event of a shutdown covered by these provisions." Again that is a huge public subsidy.
We also learn: "HM Treasury announced on 27 June 2013 that Hinkley Point C had been pre-qualified for consideration for a UK Guarantee. EdF and HM Treasury are in discussions regarding the terms of a potential UK Guarantee. Any risks borne by HM Treasury by providing such a Guarantee would be paid for by NNBG and at commercial rates. The UK Guarantees Scheme is open to all eligible infrastructure projects, including those in the renewable energy sector." Note NNBG is the joint venture developing the project. From a quick check on the government web site the outline of the guarantee is very powerful: "Government support will take the form of an unconditional and irrevocable financial guarantee (the UK Guarantee) of scheduled principal and interest in favour of a lender to a UK infrastructure project." While it is clear that such a UK guarantee is available to a variety of projects - I am not aware of a renewable project getting this guarantee.
Finally there are a few other important details like security and long term waste disposal. The press release is silent on these matters. I am not aware of any renewable plants requiring the extensive support and security that will be required for this project throughout it lifetime. The taxpayer will bear this cost not just for the operational lifetime but until the site is restored to its original use.
The matter of high level waste also needs to be addressed: we are spending over £2 billion per year on the Nuclear Decommissioning Authority. We still do not have a solution for the high-level waste generated from the existing nuclear programme, never mind this new programme. The current Geological Disposal Facility does not exist and will cost anywhere between £4b and £12b. Some estimates put the cost for constructing the Geological Disposal Facility at upwards of £50b. The Nuclear Decommissioning Authority state; "On top of this there are additional costs to support and maintain the infrastructure and emplacement facilities and extra equipment required." The public subsidy paid by the taxpayer will go on and on.
Overall I have no problem with the construction of a new nuclear plant in the UK. My real challenge is the total lack of transparency and fudging of the actual costs and long-term implications for this and future generations. Moving costs from the electricity bill payer to the tax-payer is obscuring the real costs of nuclear. One thing that renewable energy has over nuclear is that the costs are known precisely. Renewable energy does not carry the environmental and legacy issues of the nuclear industry.
I am further disappointed in that we have failed to bring true industrial innovation to this project. The technology is French, the turbines are French the financing is from France and China. Of course we will have lots of new construction jobs but the innovation stops there. It may remind you of the wind industry: all large scale turbines are imported from mainly Danish and German manufacturers.
Come on UK Government - we have a nascent marine energy industry that is severely under-capitalised. If the government diverted the Nuclear Decommissioning Authority budget for just three months to the marine energy industry it would truly revolutionise our energy options.
