finance

After years of false dawns, can Britain realise its nuclear ambitions?


As the invasion of Ukraine dragged into its second month, Boris Johnson pitched his solution to a problem plaguing western governments: how to produce enough energy for their countries now Russian gas was off the table.

Johnson’s plan was to offer an unexpected lifeline to a divisive industry by promising to build 24 gigawatts of nuclear power capacity over the next three decades, up from just 5.88GW at present.

“Our aim is to lead the world once again in a technology we pioneered so that by 2050, up to a quarter of our power consumed in Great Britain is from nuclear,” the then prime minister declared.

Britain is not alone. After years of falling in and out of public and political favour given international disasters, including Chernobyl in 1986 and Fukushima in 2011, there is talk of a “new dawn” for nuclear power.

Even countries that have been vehemently opposed to generating electricity from nuclear — notably Germany and Japan — are extending the life of existing plants to avert shortages. In France, where the industry has maintained support, the government is pushing bolder plans for new reactor fleets as it tries to cut its dependence on volatile international energy markets.

Britain has been at this juncture before. Successive governments across the political spectrum have for decades vowed to build large new reactor fleets only to fail because of the high costs and complexity of delivering atomic plants, often driving away private sector companies from potential projects.

Map and chart showing the UK’s nuclear power fleet and generation

In a significant step forward, a month after gaining power in October, prime minister Rishi Sunak signed off on a £679mn taxpayer investment in a project co-owned by the French state-backed utility EDF.

That project is Sizewell C, a 3.2GW nuclear power station on the Suffolk coast, in the east of England, which would have the capacity to generate electricity for six million homes if it gets off the ground.

The goal is to reduce the country’s reliance on dirty gas-fired power plants, the single biggest source of electricity generation, which provides a critical back-up when other weather-dependent methods such as wind and solar are not able to produce enough power.

Yet even the staunchest advocates of civil nuclear harbour doubts over whether Britain’s dream of a new golden age will finally succeed — or if this will be the latest in a series of false dawns.

“Put it this way,” says Tom Greatrex, a former Labour MP who now leads an industry lobby group, the Nuclear Industry Association. “If we don’t [succeed this time] all we are doing is storing up even more problems for later.”

Britain’s current nuclear capacity is spread across five power stations built between the late 1960s and mid-Nineties. Last year, they met 15.5 per cent of the country’s overall electricity generation mix.

 Boris Johnson touches a generator during his visit to EDF’s Sizewell B Nuclear power station
Boris Johnson at Sizewell B last year. As prime minister, he had promised to build 24 gigawatts of nuclear power capacity over the next three decades © Chris Radburn/Getty Images

The government is already in a battle against time simply to replace its existing nuclear generation, let alone expand the fleet. All but one will be decommissioned by 2028. And the resurrection of such a controversial electricity source will face resistance from those with environmental concerns over how to deal with toxic waste in the long term.

If Britain is to realise its dreams to develop more nuclear power, it will have to clear the financial hurdles that held it back in the past.

Billions of pounds in equity and debt need to be raised to deliver Sizewell C. EDF has so far only publicly released one estimate of Sizewell C’s cost: £20bn, although that was published in 2020 before huge leaps in inflation.

Sunak has promised to set up Great British Nuclear, a new body to oversee the revival of atomic energy in Britain and smooth the development of a new pipeline. This pipeline could include small modular reactors (SMRs), mini nuclear plants that can be built in factories to reduce costs and are being developed by companies including the UK engineering giant Rolls-Royce.

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People familiar with GBN say the launch has been delayed by a dispute between the Treasury and the Department for Business, Energy and Industrial Strategy (BEIS) over funding and its scope.

“There is a tension about how new nuclear gets financed . . . [but] there is always tension with the Treasury on how anything gets financed,” says Tom Samson, head of Rolls-Royce’s SMR business.

“What isn’t happening is a conversation around what are our domestic priorities . . . We are in an energy crisis, in a net zero transition crisis,” Samson argues. “Spending the next two years talking about what our next nuclear project is going to be is not going to help get a nuclear megawatt on the grid as quickly as possible.”

History of missed opportunities

Arguments over money — and who puts up that money — have been at the heart of Britain’s patchy civil nuclear industry, which started in 1956. It was the late Queen Elizabeth II who pulled the lever at Calder Hall in Cumbria, setting into motion the world’s first commercial nuclear power station.

The early years were largely a success: by 1971, the UK government had commissioned and wholly financed a further 10 nuclear power stations known as “Magnox” due to the magnesium alloy that was used to cover the fuel rods inside their reactors. The last of these ended operations in 2015.

Between the 1960s and late 1980s, seven stations using another British design, an Advanced Gas-Cooled Reactor (AGR) — meant to be more efficient and able to operate at higher temperatures — were built. Although the construction of the AGRs was, in some cases, lengthy and fraught with complications, they have proved resilient. Heysham 1 and 2, near Lancaster, as well as plants at Hartlepool, in County Durham, and Torness, on the east coast of Scotland, continue to generate electricity today.

Black and white pic of Queen Elizabeth II
Queen Elizabeth II opened Britain’s first nuclear power plant, Calder Hall in Cumbria, in 1956 © George W. Hales/Fox/Getty Images

In 1979, spurred by soaring oil prices, Margaret Thatcher’s Conservative government announced an ambitious programme to commission one nuclear power station a year for a decade using “pressurised water reactor” technology developed in the US.

Ultimately, though, only one — Sizewell B in Suffolk, housed on a site adjacent to the proposed Sizewell C plant — was ever built. Cheap and readily available gas from the UK North Sea meant the economics of nuclear did not stack up.

By the time Tony Blair’s new Labour government swept to power in 1997, its manifesto stated there was “no economic case for the building of any new nuclear power stations”. But in 2006, Blair delivered a stunning U-turn. In a speech to the CBI lobby group, he warned it would be a “dereliction of duty” for the country not to proceed with a new generation of reactors to meet climate targets and to reduce the country’s gas consumption, which would become increasingly dependent on imports.

This nuclear volte face was cemented in a 2008 white paper, overseen by John Hutton, then business secretary, and now chair of the trade organisation Energy UK.

Hutton believes New Labour should have both acted sooner and committed government funds to build new reactors, rather than believing the private sector would deliver.

“We missed an opportunity,” he says. “When we gave the green light to nuclear in 2008 there was a list as long as your arm of major energy companies saying: ‘We have the money, we don’t need government help, we have got strong balance sheets.’”

Then, of course, came the 2008 credit crunch, he adds, and those offers disappeared.

It was not until 2013 that David Cameron, prime minister under the Conservative-Liberal Democrat coalition, went on to strike an agreement with EDF to build a new 3.2GW plant at Hinkley Point, in Somerset. The deal crucially avoided a big government cash injection upfront, keeping in line with a condition imposed by the Lib Dems that no taxpayer subsidies would be used.

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In return for taking on the risk of construction of Hinkley C, EDF was offered a price of £92.50 per megawatt hour for 35 years, rising with inflation, for the plant’s output once it was operating. The price agreed at the time was roughly double prevailing power prices, sparking outcry from MPs and rival energy groups.

Even then, the UK had to court another company with sovereign backing — state-owned China General Nuclear — to help front the huge construction costs, which were estimated at £18bn when building work began in 2016 but have since spiralled to £25bn-£26bn.

CGN has kept a 33.5 per cent stake in Hinkley C, with EDF holding the remainder. But with UK-China relations souring, ministers are nervous about CGN keeping even a toehold in the market and have already forced it out of the Sizewell C consortium.

That financing agreement for Hinkley, known as “contracts for difference”, “made sense when you were working with the Chinese and French governments”, says the former Tory MP Charles Hendry, an energy minister under the coalition government. “But it doesn’t work when you’re trying to deal with private companies . . . others just walked away. They said they couldn’t take the cost on their balance sheets, given it would be 15 years or so before they’d get their money back.”

Photo of a gate with a sign saying ‘Caution site entrance’ and a view of Wylfa Nuclear Power Station in the distance
Wylfa in 2015 was the last of the Magnox plants to be shut. A new £20bn plant to be built on the site fell through when Hitachi pulled out in 2019 © Christopher Furlong/Getty Images

Hopes of persuading other companies, including Japanese conglomerate Hitachi, to build large new plants elsewhere in the country fell apart in 2020 as investors baulked at the high upfront costs and slow financial payback.

Even the offer of the UK government taking a one-third equity stake in a £20bn plant at Wylfa on Anglesey in north Wales was not enough to prevent Hitachi from cancelling the project in 2019.

Simon Bowen, a nuclear industry expert who was appointed by the government last year to advise on the creation of GBN, says Britain must not repeat its past mistake of relying too heavily on the private sector.

Speaking to the House of Commons Science and Technology Committee on Wednesday, he warned that there are “very few” companies with the balance sheets, or the will, to take on the risks of constructing a nuclear plant: “Our conclusion is particularly in the early stages there has to be substantial government investment.”

Nuclear test case

Fresh hopes of encouraging the development of a new fleet of nuclear reactors — both large and small — now rest on a complex hybrid public-private partnership financing model known as the Regulated Asset Base.

Already used for other infrastructure projects such as energy networks and airport terminals, RAB promises potential investors an “allowed revenue” — overseen by a regulator — from the start of construction, funded via a surcharge on consumer energy bills.

Supporters of the model, such as EDF, argue it significantly cuts the cost of financing because it lowers the interest that builds up during the construction phase and reduces the amount of compounded debt that needs to be serviced and paid off during the station’s lifespan. Financing costs account for roughly two-thirds of the overall cost of a nuclear plant.

The allowed revenue payments continue after the plant is operational. Rather than paying a price for every unit of electricity produced, the model essentially pays for new nuclear power stations to be available.

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Its supporters say this is well suited to an energy system where weather-dependent renewables form the backbone but other more stable low carbon technologies are still needed when supplies are running low.

But the RAB model is also divisive. Critics argue it would saddle bill payers with high additional costs if projects run over time and over budget.

The UK government intends for that risk to be shared between the project’s owners and consumers, according to people familiar with the discussions, although it is yet to reveal how that would work in the case of Sizewell C, which is unlikely to be connected to the electricity grid before the 2030s.

“If the cost of overruns and delays cannot just be lumped on to consumers, I think it would be implausible any investor would look at the deal,” says Steve Thomas, emeritus professor of energy policy at the University of Greenwich. “How would you feel if your pension fund was taking the risk of a nuclear project not being built to time and cost?”

For long-running nuclear sceptics, the latest attempt at ushering in a new civil nuclear golden age in Britain risks diverting attention and investment away from other technologies, such as wind, solar and storage, which could be delivered sooner to achieve the country’s near-term emissions targets.

The UK government is working towards a fivefold increase in offshore wind to 50GW by 2030 — which it claims would be enough to “power every home” — and to raise solar deployment to 70GW from 14GW by 2035. Renewables supporters claim these could still meet a lot of demand even on calmer, less bright days.

“If you want to hit your 2035 target and Sizewell C is not going to get you there [in time] then you have got to do something else . . . so why do Sizewell C as well if you are going to get there without it?” says Alison Downes, a former head of direct actions at Greenpeace UK who is now spearheading a campaign to stop Sizewell C being built.

A lone demonstrator with multiple placards and an umbrella to protect from the sun sits  outside Sizewell B
An anti-Sizewell C protester sits outside Sizewell B. Opponents of the project are concerned about the cost to the taxpayer and say money would be better spent on renewables © Chris Radburn – WPA Pool/Getty Images

Among longstanding nuclear proponents, there are still nerves about whether Britain’s latest attempt to revive an industry will come to fruition, even if they feel the politics are now on their side.

If a final investment decision is taken by the end of 2024 as hoped, Sizewell C will be the first test of the financing model for nuclear projects and only the second nuclear power station to enter construction since 1995, when the last of the current fleet opened. The other, Hinkley Point C, began construction in 2016 but is running over-time and over-budget. It is not currently envisaged to generate any electricity before mid-2027.

Nuclear industry executives have also been pushing ministers to confirm a new nuclear reactor construction programme beyond Sizewell C as part of GBN’s launch.

This should, in the short-term, include a commitment to take final investment decisions on two further nuclear projects in the next parliament.

But to get to that stage and avoid adding to the roster of failed nuclear projects, the impasse within government must first be resolved.

Graham Stuart, energy and climate minister at the BEIS, alluded on Wednesday to the tussle between departments, saying a date for the launch of GBN would be set once it had “a resolved and finalised agreement with His Majesty’s Treasury”.

A government insider confirmed the rollout was being held up by chancellor Jeremy Hunt who “wants to do due diligence on GBN before approving it”.

“Is there haggling over money?” the person says. “There always is.”

Data visualisation by Chris Campbell



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