The government’s new funding model at the heart of its plan for a nuclear renaissance is an improvement since it struck a deal three years ago to support Hinkley Point C in Somerset. This is the best that can be said for the new strategy, outlined by officials in a consultation last week. It is also very faint praise.
EDF Energy’s deal to build Hinkley Point C, Britain’s first new nuclear power plant in a generation, has been dubbed the world’s most expensive power plant of all time, a “white elephant” in a changing energy landscape, and a risky and expensive gamble with taxpayers’ money.
There was little chance that a deal so politically unpalatable could be repeated for EDF’s follow-on project at Sizewell B. Instead, officials returned to the drawing board to re-engineer a multibillion-pound funding framework that could help lower the eye-watering costs of constructing a nuclear reactor.
The £20bn Hinkley Point C project will cost energy bill payers £92.50 for every megawatt-hour of electricity it produces for 35 years. It is a price well above both the UK’s wholesale energy price of around £55 a megawatt-hour, and the new breed of offshore wind farms.
The new funding model promises to cut the cost of building a new nuclear plant by a fifth – but this, too, comes at a cost. The government’s plans to make nuclear affordable means Britons will twice shoulder the risk of building new nuclear reactors.
First, by paying upfront for the reactors through energy bills to help fund their construction. Second, by taking on the cost of any overruns or construction delays through a taxpayer guarantee. The public purse would also compensate nuclear investors if the project were scrapped.
It is the same model used to fund London’s £4.2bn super-sewer project, the Thames Tideway tunnel, which has drawn criticism for raising water bills while investors reap financial rewards.
By shifting the risk from private investors to taxpayers, nuclear developers will be able to borrow money at cheaper rates, which will lead to lower bills for consumers.
On paper, the proposal is a better deal than Hinkley, but it’s far from perfect.
The National Infrastructure Commission has taken a dim view of the model. “This makes projects appear cheaper as consumers are effectively financing the projects at zero interest. At least some of the risk associated with construction costs also sit with consumers, a further hidden cost, since consumers are not paid to hold these risks in the way investors would be,” it said.
In addition, the sums hold true only if the project remains on schedule and on budget for the decade it takes to construct a nuclear plant. There are worryingly few examples where this has been the case; EDF Energy’s forerunner to the Hinkley project, at Flamanville in Normandy, is expected to cost four times original estimates. It was expected to begin generating electricity in 2012, but is now expected to start up in 2022.
The French energy giant has said the lessons learned from Flamanville mean Hinkley Point will avoid a similar fate. Sizewell will be at an even greater advantage because it will use the same UK workers once Hinkley is complete.
Why take the risk at all, though?
“If ministers want affordable and clean energy, the fastest, safest and cheapest way to do that is to boost renewables like wind and solar,” said Doug Parr, chief scientist at Greenpeace.
There have been major advances in flexible renewable energy technologies in recent years, but ministers retain an appetite for the “firm” low-carbon electricity generated by nuclear reactors despite the financial hurdles to building them.
The UK’s energy landscape is littered with stalled nuclear plant projects which have so far failed to make a financial case. Already half the projects proposed three years ago have foundered.
But the government’s commitment to a new atomic era is still the most reliable element of its nuclear programme to date.
